What Your Financial Statements Don’t Tell You

By Lisa Blankman, CPA
Manager, Audit & Assurance Services

As CPAs, we believe in accurate financial reporting in accordance with Generally Accepted Accounting Principles (GAAP), but what we also know that most business owners are not proficient at understanding those same financial statements. Accordingly, we promote the idea of focusing on the Key Performance Indicators (KPIs), in order for them to judge the performance of their company’s operating results.

KPIs are data points evaluated at a point in time over several periods, either compared with your respective industry benchmarks or against your company at that same point last year. What can they tell you? The KPIs should include financials ratios of liquidity, operating efficiencies, leverage, etc., as well as specific ratios that are unique to your business’s industry or profession ( i.e. if retail, sales per sq. ft. of floor space).

When you analyze your company’s progress to see how it can grow further, you need to look beyond financial statements and dig deeper for the information that is key to you and your managers.

First and foremost, make sure you seek out Key Performance Indicators that are relevant to measuring the benchmark results you are seeking. What is your average revenue per customer? What is your actual fully burdened hourly labor rate for that particular part or service module? What is your gross profit by service line? These are just a few examples. We also believe in looking at these over a 10 year period of time in order to understand the fluctuations due to economic cycles. Your focus should be on the long term but with a bias for action that must be started TODAY!

Among other things, monitoring these metrics will help you gauge customer engagement, identify underutilized facility space and explore new revenue streams. Perhaps you need to lease vacant office space or boost sales capacity by adding new staff members and services. Speaking of staff, look at your employee turnover rate as well. If it’s high, you’ll want to examine your company’s culture and employment packages to figure out how you can improve.

Taking a close look at these Key Performance Indicators will help you determine whether your business is living up to its potential. Learn from your strengths and weaknesses and focus on how you can improve financial results as you set your goals for 2019.

If we can assist you further with achieving success in your business or personal affairs, please call Lisa Blankman at (317) 613-7856 or email lblankman@sponselcpagroup.com.

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