Five Key Reports That Measure Business Performance

Five Key Reports That Measure Business Performance

How well is your business doing?  Many small business owners look at their sales numbers and the number of customers and assume their business is performing well.  While these are both signs that your business could be doing well, they are not reliable performance indicators that you should solely rely on to make decisions.  After all, if a company was selling products at a loss, they might have record sales numbers, but their financial performance will be poor.

Today, we’re going to look at five financial tools that measure business performance along with a brief explanation of how each works.

Profit and Loss Statement

You’re probably very familiar with the profit and loss statement as the report used to show the money your business makes less any expenses.  Companies around the world rely on these reports to show how much money the company is actually bringing in, rather than just looking at revenue and units sold as performance indicators.  Profit and Loss statements also focus on items like gross profit, operating profit, and net profit, which further indicate the detailed performance of your business.

Balance Sheet

Do you want to know at any given moment how healthy your business is?  Look no further than your balance sheet.  On the balance sheet, you’ll find three components: Assets, Liabilities, and Equity.  Assets are the cash you have on hand, any equipment you have, etc.  On the other side of the sheet, your liabilities will tell you how much money you owe, along with any expenses you might incur. Finally, your equity position is the difference between total assets and total liabilities.

In an ideal situation, your assets should outweigh your liabilities, although many businesses saddled down with debt might see otherwise.  This report should be updated regularly and reviewed on a monthly basis because it serves as an accurate indicator of your company’s success.

Cash Flow Statement

Want to know where your money is going?  Your Cash Flow statement can tell you a lot about where your business’ cash is going and whether you need to cut back.  A Cash Flow statement will also show how much money your company is bringing in and you can use it to understand your liquid assets better.

Look for New Customers

Once you have taken a look at these other financial reports, you should look at data about your customers. Ideally, you’ll want your business to grow over the long term, and the only way to accomplish this is to sell to more people (or to increase your prices).  If your company is still only selling to the same 25 clients, for example, your business is stagnating.  On the other hand, if you bring in more people each month, it’s a good sign that your business is growing.

Liquidity Ratios

The final performance tool you should use to measure your business’ performance is a liquidity ratio.  There are a few different versions but they primarily serve the same function of measuring the amount of cash and easily converted assets you have on hand in comparison to all other assets.

If you have short-term commitments you must make, or need cash to cover expenses or debt, knowing how liquid your assets are, can tell you a lot.  Most successful businesses should have the cash to cover their bills and other costs. Conversely, if all of your assets are tied up, you might face certain risk exposures down the track.

Let Us Help

If you have any questions on how best to measure your business performance then please reach out to our team of experts at ABJ Business Solutions. We love to use our skills to measure business performance accurately and in a timely manner so that you can make the right decisions for your business to be profitable and grow.