Running a business or operating as an independent contractor comes with its benefits, but at times it can also feel like you’re spinning. During busy periods, when you’re chasing revenue goals and working hard to meet client outputs, you’re far more susceptible to dropping the ball in some areas of your business.
Errors that affect your books can have knock-on effects and cause severe financial clutter and tarnish the economic outlook of your business. It is important to implement business stabilization strategies as part of the monthly recon you do on your business.
Ensuring a stable outlook for your business
Doing a monthly recon of your books to make sure your business remains on track to achieve its goals and continues to meet GAAP guidelines is essential to producing clean accounting records, but also to understanding the financial state and health of your business.
We take a look at some of the important numbers your business needs to look into frequently to avoid accounting inconsistencies and which may indicate that business is heading into an area of risk when it comes to business stability.
Revenue to expense ratio
Taking a closer look at the income and expense statements of your business is an important step in understanding the stability and profitability of your business. Your chart of accounts is designed to give you insights that allow you to act swiftly when your business might be hitting a low patch, but it will also give potential investors a view of the financial health of your business. Looking into your revenue and expenses is fundamental to understanding a business and directing its growth. You should consult with your CPA regularly to assess the financial health of your business in this regard.
Asset to liability ratio
Similar to assessing the income and expenses of your business, is the higher level of assessing what your business owns as assets and what debts and other financial obligations your business must meet. This will not only tell you about the day-to-day financial well-being of your company, but it will communicate the stability of your business at a deeper level. Your CPA will be able to make recommendations based on your asset to liability ratio, and develop a plan for your business to bolster its stability.
Equity stakeholders
The entity structure of your business determines how owners pay and manage taxes. Along with shareholder buyout agreements it also determines buyout terms for stakeholders with financial claim to the business. Multiple buyouts may make it difficult or impractical for a corporation’s operations to remain profitable, which makes this an important factor to consider in your business stabilization strategy. Consulting with a CPA or business expert on a safe percentage of business investment from shareholder investments is advisable for business owners who may rely on capital investment as part of their growth strategy.
The stability of your business goes beyond finances
To maintain a healthy financial position, your business needs to have a strong plan that covers operational, financial and marketing insights. While the numbers certainly dictate the financial position of your business, its stability is not solely dependent on the money. Your operations and good standing with clients as well as the marketing methods your business taps into certainly plays a major role in the holistic outlook of longevity of your company.
At Fusion, our CPAs are trained to consider stability in its entirety. We look at your books, make inferences and guide business owners to implement process that will set your business up for long-term success. Contact us to run complementary diagnostics on your business.
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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
