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What Should Small and Mid-Size Businesses Expect From Their CFO?

What Should Small and Mid-Size Businesses Expect From Their CFO?

The CFO’s role within an organization depends on several factors. These components may include the expectations coming from the CEO and board of directors, and may also vary depending on the industry, corporate strategy, and the goals of the business. A company’s size can also have a significant influence on the CFO’s role.

Below, the Signature Analytics team has outlined some general responsibilities that every business should expect from their CFO.

The Importance of Forward-Looking Financial Analysis

The foundation of any company’s accounting and finance function is to produce timely and accurate financial information for the business. The CFO oversees these accounting and finance functions, but their true value comes from the ability to provide forward-looking financial analysis. This analysis should be focused on driving additional profitability and value to the company.

Read More: Outsourced CFO Services – Benefits of a Part-Time CFO

Whether you have a full-time, part-time, or outsourced CFO, below are some examples of the forward-looking financial analysis you should expect from the CFO role:

1. Cash Management & Forecasting

Can you predict when your business will have a surplus of cash that needs to be managed or when you will have a shortage of money that requires financing?

Cash flow problems can kill businesses that might otherwise survive. Your CFO should be monitoring cash flow and analyzing cash flow projections regularly to ensure your business does not run out of cash.

2. Budgeting & Expense Control

Does your business have a budget? Do you receive an analysis comparing prior year actual, current year actual, and current-year forecast on a regular basis?

Your CFO should own the budgeting process by incorporating input from each department for the most accurate and complete projections. They should also be monitoring budgeted versus actual results on a quarterly or monthly basis and reforecasting accordingly.

Read More: How CFOs Add Value To Your Business

3. Compensation Plan Development

Is the compensation of your employees aligned with the goals of the company?

The CFO of a company should help to structure employee compensation plans that incentivize efficiency and align with the financial goals of the company.

eGuide: What Business Should Expect From Their Accounting Department

4. KPI Development & Analysis

Are you maximizing margins? Are profits analyzed by revenue stream? Are employees being utilized appropriately to maximize profitability?

KPIs (Key Performance Indicators) are different for every business. They should act as the company’s compass, and the CFO serves as the navigator.

It is the responsibility of the CFO to work with those in operations to help develop KPIs applicable to the company and support the analysis of those KPIs regularly. The CFO should be using the data from the KPIs to assess business performance in real-time. Making changes that directly improve KPIs can help build the future value of the company.

Read More: What Are Key Performance Indicators and Why Are They Important?

5. Board & Investor Communications

Are you providing valuable financial information to your Board of Directors so they can review the trends of the company’s operations and assist in making appropriate decisions? Is the information presented professionally?

Your CFO should be preparing presentations for your board members that effectively communicate the company’s financial information in an organized manner. The information should illustrate trends to visualize projections so the data can help drive business decisions.

6. Securing Financing & Raising Capital

Do you review your banking relationships regularly? Are you confident you have access to financing on the best possible terms for your business? What are the capital needs of the company now and in the future? What is the best way to meet those needs?

Your CFO should play a key role in identifying and securing investment and financing. They should identify capital requirements before approaching financial institutions and investors to ensure you raise the appropriate amount of capital required to support your growth plans.

A successful CFO should also prepare presentations of the company’s financial information, allowing potential investors or lenders to understand the data and the companies performance.

7. Tax Planning

How often are communications occurring with the company’s tax advisor to maximize all tax-related strategies?

Your CFO should maintain consistent communication with tax preparers to minimize your company’s potential tax liability.

8. Ongoing Analysis & Review

All of these responsibilities should be considered ongoing processes that are revisited on a regular pre-determined schedule and modified based on the most recent financial information available.

Furthermore, all of the results should be measurable to track the success of the performed analysis.

eGuide: What Business Should Expect From Their Accounting Department

A Solution That’s Right For You

If your CFO is providing forward-thinking analysis, they are providing infinite value to your company.

Each of the outlined goals above can help maximize profitability and value for the business, and, if managed appropriately and adequately, companies with the correct financial infrastructure can witness significant operational improvements and growth. Having this kind of efficiency will allow you to think about your business in new ways and likely uncover new possibilities for what’s next.

If your business requires any (or all) of the forward-looking financial analysis mentioned above, but you’re not in a position to hire a full-time CFO or may have a team that just needs additional support, the team of experts at Signature Analytics can help.

Our highly experienced accountants can act as your entire accounting department (CFO to staff accountant). If that solution isn’t the right fit, our team can complement your internal accounting staff, to provide the ongoing accounting support, training, and forward-looking financial analysis necessary to effectively run your company, analyze operations, and guide business decisions.

Have questions about our process? Contact us today for a free consultation.

 


 

Do you know your numbers?

Cash Basis or Accrual Basis – Which Accounting Method is Right for Your Business?

Cash Basis or Accrual Basis – Which Accounting Method is Right for Your Business?

Whether you own a small company or a large corporation it is important to maximize the value of your accounting records so you can make the most informed and appropriate decisions for your business. The accounting method your company uses can have an impact on your ability to make these financial decisions, so it is important to choose the best method for your business.

There are two primary accounting methods that companies use to track their income and expenses – cash basis or accrual basis accounting methods. Below we will review the advantages and disadvantages of each accounting method, discuss the impact they could have on your company, and assist you in evaluating which method is the most appropriate for your business.

Here are some important criteria to consider when performing this evaluation:

  1. Who are the users of the financial statements and information (management, investors, bank, tax advisors, etc.) and how will they use this financial information?
  2. What method of accounting is the company using for tax purposes?
  3. What is the vision of the company in the next 5 years?

Cash Basis Method of Accounting

With the cash basis method of accounting, transactions are accounted for based on the company’s cash inflows and outflows. For example, revenue is recorded by the company when the cash is received from customers and expenses are recorded when payments are made to vendors. Because all transactions are recorded based on the cash inflows and outflows, the company’s balance sheet will not include, or track, the accounts receivable or accounts payable. With this method, accounts receivable and accounts payable are usually tracked separately within the company’s accounting system or on the side.

Many small and start-up companies will use the cash basis accounting method because it is typically the simpler of the two methods from an accounting standpoint. At this point in a business, companies also tend to place a lower level of importance on the financial information of the company, so the cash method is sufficient for their purposes.

Accrual Basis Method of Accounting

Under the accrual basis method of accounting, transactions are accounted for when the transaction occurs or is earned, regardless of when the cash is paid or received. Income is recorded when the sale occurs and expenses are recorded when the goods or services are received.

Although it is slightly more complicated from an accounting and tax preparation standpoint, there are significant advantages for companies using the accrual accounting method. These advantages include:

  • The ability to “match” revenues and related expenses within the applicable periods so companies can appropriately analyze profitability margins.
  • Creating consistency as to when the revenues and the expenses of the company are recorded allowing for increased ease of budgeting and forecasting.
  • If the company is looking for additional financing opportunities, banks and other investors usually ask for the financial information in the accrual basis method of accounting.

In general, the accrual method of accounting provides a better picture into the financial results of the company. This allows users of the financial information to make more informed decisions, ultimately providing additional value to the company.

Which Accounting Method is Best for Your Business?

Based on the information above, let’s revisit our consideration questions to help you evaluate which method is best for your business.

1. Who are the users of the financial statements and information (management, investors, banks, tax advisors, etc.) and how will they use this financial information?

If the users of the financial information are strictly internal management and there are a limited number of transactions, the cash method may be appropriate; however, management will be limited to the financial information available when making decisions.

If the company has outside investors, bankers, or other advisors, it is highly recommended to utilize the accrual method. Not only will it provide substantially more insight and value to those users, it will also show that the company is sophisticated enough to take the next step as a company.

2. What method of accounting is the company using for tax purposes?

From a tax perspective, the accrual method MUST be used for the following companies:

  • Your company is a C corporation.
  • Your company has inventory.
  • Your gross sales revenue is greater than $5 million (there are some exceptions to this rule that you should discuss with your tax accountant).

If your company is required to report taxes on an accrual basis for any of the reasons above, then you should always account for your internal records on an accrual basis as well.

If your company does not meet the above criteria, then you have the option to report taxes on a cash or an accrual basis. Many times it is more advantageous to report taxes on a cash basis and these options should be discussed with your tax accountant. However, even if the cash method is the best option from a tax perspective, it may still be beneficial from a management perspective to use the accrual method for internal reporting purposes.

3. What is the vision of the company in the next 5 years?

If your company is small, has limited transactions, and there are no plans for growth in the future, then the cash basis method of accounting would likely be the preferred and most reasonable option.

However, if your company forecasts growth in the future, especially if you plan to have revenues in excess of $5 million, it is important to begin accounting for the company’s transactions on an accrual basis as soon as possible. This transition is essential as you prepare your company to enter into discussions with other advisors and begin seeking out potential financing opportunities. It will give your company and management credibility and allow you to make the most appropriate and informed financial decisions for your business.

Making the Transition

If your company is currently using the cash basis method of accounting and feel it may be time to transition to an accrual method, we can help. Our experienced accounting team has assisted several companies with this change – some to facilitate the growth of their business and others to provide better insight into the financial health of their company. Contact us for more information or to receive a free consultation.

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8 Things to Consider When Planning an Annual Budget for your Business

8 Things to Consider When Planning an Annual Budget for your Business

Crafting an annual budget is one of the most important financial aspects of a business, but often gets overlooked.

Business budget planning is an essential task that is frequently neglected at small and mid-size companies. So why is it so important? Well, mostly because it is a process that prepares your company to answer critical questions about what the next 12 months will look like:

  • What are you projecting sales to be next year?
  • Are you expecting margins to improve next year?
  • Do you plan to hire additional employees?
  • Will you have any significant capital expenditures soon?

These questions (and many others) are typical of investors, financial institutions, potential strategic partners, and financial buyers. Every business, regardless of size, should have the answers to these questions to be able to plan the annual operating budget accordingly.

Having a chief financial officer, or CFO, as part of your company’s C-Suite executive team can be an asset in this process.

A CFO will have access to and be up to date on the most recent financial data pertaining to the company. These resources can help the company craft its budget, as well as short and long-term financial goals. Strategic budgeting is a skill that any good CFO will have in their arsenal. It’s just a matter of working as a team to bring all the relevant information together to plan for the future.

Read more: What CEOs Need From Their CFO

If you are overwhelmed by company budgeting planning, don’t have a CFO, or don’t know where to begin, below are some tips to help you get started:

1. Consult All Departments

The annual budgeting process should not be completed behind closed doors by one member of the accounting or finance team. Instead, all the departments within the company should be part of the conversation and provide feedback, insights, and expectations for the following fiscal year.

Who should contribute to the conversation? Be sure to loop in:

  • The sales team: they can assist with realistic revenue assessments
  • The manufacturing or service team: they can advise on costs of delivery and any large purchases required to update machinery
  • The research and development team: they can discuss expected expenses as well as the timing on any new products anticipated
  • Any other departments who can add value to the conversation

It is encouraged to incorporate feedback from each department as the results are much more likely to be accurate. Therefore, project completions are possible for the upcoming fiscal year. Too often, companies that do complete the annual budget planning process estimate an overall percentage increase over the prior year’s actual income – this is something that should be avoided.

2. Estimate Revenues

Expected sales have a significant influence on costs, including employee headcount, but it can be very challenging to make projections accurately. Here are some ways to come up with the best estimate:

  • Consider the recent monthly growth rate experienced by the company and decide if it can be continued.
  • Review industry guides and other expert publications that focus on your industry.
  • Review financial information from a number of your competitors, if available.
  • Communicate with your current customers to better understand their expected needs of your product or service.
  • Discuss the expected sales with your sales department and set expectations to help determine compensation for this team.

3. Determine Expenses

Once the expected revenue figures are estimated, the focus can shift towards expenses. Here are some considerations:

  • Some costs relate directly to revenue, whether they be inventory or employee services. Typically, the gross margin of a business does not fluctuate substantially unless new products are developed, inventory prices change, or inefficiencies are identified within the manufacturing process. Use this time to challenge your employees to identify cost savings related to the delivery of products or services.
  • Other expenses are fixed costs such as rent, insurance, equipment leases, and certain other services purchased. These expenses may be easier to estimate; however, you should consider reviewing the policies in place, especially around insurance. Use this time to determine if better insurance rates are available or if different coverages would be more advantageous.
  • Employee compensation should always be established to be in line with revenues and related growth in the coming year. Many companies believe that all employees require annual raises, but if the results show a contraction in the business, then it may not be reasonable. Consider tying aspects of compensation to the growth of the company. With today’s inflationary trends, make sure you include cost of living wage increases for your employees in your budget and projections as well.
  • Along with compensation, estimating employee headcount is a critical aspect of the budgeting process. It is important to identify when you will need to hire, how long that hiring process takes, and what experience level would optimize the operations.

4. Identify Capital Expenditures

Often not considered in the budgeting process are those large or expensive purchases which are vital to the continued success of the business. These may include new computers, systems, machinery, vehicles, furniture, etc. It is essential to keep in mind that each new employee hired will likely require a certain amount of capital expenditure.

Investments in equipment or processes that are directly related to your product or service should also be considered. Will you need to purchase any new materials next year? Is there old equipment that needs to be updated? Avoiding investment in equipment can impact your output, quality, or delivery timing, which can directly impact your revenues.

5. Calculate Cash Flow

While putting together a projected income statement can feel great, it is just as important to calculate the expected cash flow of the business.

Your company may pay bills faster than customers pay theirs. You may need to purchase inventory well in advance of sales if acquisition time is significant. In cases such as these, a cash flow statement should be created using the income statement as well as AR/AP turnover rates and other metrics from the balance sheet.

Read more: These Are the Four Financial Statements You Need to Grow Your Business

6. Be Conservative

While it may seem advantageous to show investors that the company will significantly grow, it’s a possibility that results may disappoint. Even worse, business decisions may have been made using such projections (aka best guess scenarios). When in doubt, it is a good idea to be more conservative and leave some room in the projections in case of emergency, unforeseeable large expenses, or a drop in revenue and sales.

7. Start Early

Businesses should begin the annual budgeting process three to four months before the start of their fiscal year to allow sufficient time to craft a detailed estimate before the year ends. However, the annual business budget should be monitored and updated on an ongoing basis. For this reason, it’s never too late to get started.

8. Monitor, Evaluate & Reforecast

Once you complete the budgeting process, the biggest mistake you could make is to file it away only to pull it out again at the end of the following year.

A budget should be monitored monthly, or sometimes weekly for smaller companies. Budgets should be edited if circumstances change, like bringing in more fruitful accounts or losing critical customers.

If you have a CFO on your team, they can help facilitate a strategic forecasting process that extends beyond the annual budget and encompasses more of a three-year plan. This can help push your company to think about future business decisions and goals.

Furthermore, budgets should always be compared to actual results to understand why there are differences. Doing this will help monitor spending money throughout the year and help management make important decisions in relation to the business. Put these tips into action and learn how to prepare an annual budget with our in-depth guide.

We Can Help

Signature Analytics will help guide your company through the annual budgeting process. We will work with your management team to create a budget for your business and monitor that budget throughout the year.

This would include analyzing the budgeted versus actual results quarterly and helping forecast accordingly. We can also perform industry and economy reviews to assist with the forecasting process and provide benchmarking data.

If you want assistance creating (or improving) an annual budget for your business, contact us today for a free consultation.

How to Develop a Strategic Financial Plan for Your Business

How to Develop a Strategic Financial Plan for Your Business

It is difficult to accomplish goals without a plan. Think of the last time you wanted to lose 10 pounds. You likely planned out your meals, picked which days you would go to the gym, and got yourself into bed early, so you were rested each day. All of this encompasses a plan; without one, you likely wouldn’t have been able to achieve your goal.

Just like you, your business also needs a plan. Strategic financial planning is required for any company to be successful. It’s a roadmap to understand what direction your business is heading and why. It can also help you plan for some of life’s unexpected happenings, like a recession.

Read More: Why You Need Financial Scenario Planning for “What Ifs”

Financial planning strategies for your business can help you determine where to spend money, time, and other resources. It should include specific goals to help you reach your dream. To help identify each unique point within the strategy, you should utilize various tools such as forecasting, budgeting, cash flow analysis, and key performance indicators. Let’s break down exactly what should and should not be included.

What Valuable Questions Should I Consider First?

First, let’s start by answering some common questions that can help guide your direction:

  • What are the goals of ownership? Do they want to sell the company in 3-5 years or hold and operate for 20 years?
  • What are the key metrics that drive profitability to the business?
  • What are the key metrics that drive value to the business?
  • Do they understand the profit margins of the business in total and by revenue stream?
  • What is the cash conversion cycle of the business? (How long it takes for cash outflows to turn into cash inflows, i.e., cash paid for product to cash received from the sale of product.)

It’s essential to take the time and consider the answer to each of these questions. These responses can give you a clue as to where to begin in the process. To help guide you on the strategic and financial planning process, we have broken down tangible steps to help get you there.

    1. Figure out where you are: Use your resources to conduct internal and external audits to help better understand the marketplace. Are you at the top of your industry or floating somewhere in the middle? Maybe you are at the bottom, and that is ok too, so long as you know where your business stands currently. This process can help you reach the next step. Have a clear understanding of what you are great at and what your competitors are doing too.
    2. Focus on what’s important: What is it about the business that will get you to the next rung on the ladder? What do your customers come to you for and praise you for doing? What is your company’s mission? Once you identify these main points, you will understand what your team and financial business plan should ultimately be focusing on right now.
    3. Define your objectives: Now that you know what you should be focusing on, also consider areas that your company has been “distracted.” What teams or committees are taking away from the main objectives? Zero in your attention on what is most important and focus all your efforts there.
    4. Put people in charge: How many times has a project fell through because no one was championing it? Use your team to your advantage and make people accountable for their projects that focus on your company’s objectives. Accountability is a true key to success in your company reaching its goals.
    5. Circle back: This plan, if done correctly, will work for now, but not forever. It is vital to set up a timeline to check back in with your team on their projects to ensure your company is hitting its goals and objectives. Maybe a quarterly check-in is what is best for your business or, perhaps, it’s yearly. Whatever cadence you set up is based on your companies needs; just don’t forget to review the strategic plan every so often.

Once a financial plan development has been made for your company, an annual budget should be created. When creating a budget, it is important to look at the income statement, but also the flow of activity driving the balance sheet, and then ultimately the timing and flows of cash.

Read More: Top Questions to Ask Before Building Your Business Budget

For many of our clients, in addition to the budget, we use a rolling forecast model, which is updated monthly based on the most recent company information available. This allows us to have clear visibility into our clients’ cash position for a minimum of 90 days in advance at all times. This way, we can help ensure there is appropriate cash and business planning can be made proactively in advance.

Key Performance Indicators (KPIs) can then be developed to focus on driving profitability, value, or both to the company. Examples of KPIs may include tracking the average days outstanding in Accounts Receivable in which continued improvement over time will increase cash flows of the business. Another simple KPI to track would be gross margin by product or service line. By knowing this information, the management of the company can make decisions to improve these metrics over time.

KPIs should be included as part of an ongoing scorecard and reporting package (monthly at a minimum) that management reviews. Management must develop KPIs that can be translated into actionable insight and ultimately to action. An action plan should be established at each meeting based on the movement in the KPIs, continuously focused on improving the KPIs over time. The action items should then be reviewed at the next meeting for progress, at which time new action items are then created.

In short, know your goals, develop a plan, budget, and forecast out your plan, develop trackable metrics, and then execute on your plan. Want to break down the process even more? Read our blog on planning a strategic budget that sticks.

We Can Help

Contact us to see how Signature Analytics can assist in identifying your goals, developing a plan, and developing metrics to execute your plan. Our talented, experienced accountants and financial analysts can complement your existing accounting employees, or act as your entire accounting department (CFO to staff accountant).

We provide the ongoing accounting support and financial analysis necessary to more effectively run your company, analyze operations, and guide business decisions to help you grow.

Where to Invest and Where to Cut? Smart Decision Making Based on Dispassionate Financial Analysis

Where to Invest and Where to Cut? Smart Decision Making Based on Dispassionate Financial Analysis

Where to invest a company’s finite resources is one of the most important decisions faced by business owners—and where they spend a significant amount of time. When companies have poor visibility of financial information, it undermines management’s ability to make informed decisions on where to invest money and where to cut spending.

Choosing Where to Invest

Successful investment management strategies rest on the anchor of good financial information. It is critical that decision makers have accurate and reliable financial information (historical and projected) on the performance of various departments, product lines, services, etc. Only with this visibility can decision makers be provided with clear choices which enable them to make strategic decisions about which areas should get more resources and which areas should receive less based on dispassionate hard facts.

Cost Cutting vs. Cost Control

The best cost cutting strategy is to have robust cost control in place from the beginning, making a cost cutting strategy superfluous. But let’s face it, even the best run businesses run into snags and bumps which require a cost cutting program at some point.

Across the board cost cutting (e.g., mandating each department, business unit, product line, etc. cut 10% of all costs) is never the right approach. Rather–similar to determining where to invest–when deciding where to cut costs you ideally want to have 100% visibility of direct spend (e.g, raw materials) and indirect spend (e.g., rent and utilities) across the entire business and the ability to allocate that spend to the various products, services, or strategic priorities they relate to.

It should be said though, cost cutting is not an end game. Without a good cost control program, cost cutting will be a futile exercise as any gains made will eventually reverse as cost creep back into the business.

The Budget

The budget, when used correctly, is the single best tool for managing your investment plan and controlling costs. It is important that the budget is based on reality and that there is a clear understanding of which line items are impacted by various actions the company intends to take.

It’s also important to manage the budget by individual line item, not by department, unit, or other overall totals. This is because timing differences in the accounting for various transactions can give the appearance of favorable variances, offsetting other over-budget line items; however, when those timing differences catch up to you, it may be too late to take corrective action, or at a minimum, you are months behind.

The Role of Accounting

Accounting plays a central role in bringing transparency and visibility to key financial information and in supporting budget performance analysis. The bottom line is that having accurate, reliable and appropriate financial information is essential if you want to make the best strategic decisions for your business.

Improve Decision Making Through Visibility of Financial Information

At Signature Analytics, we work with our clients’ management teams to ensure they have the financial information they need to make the best decisions for their company. This is accomplished by producing a detailed understanding of the cost structure of the business, as well as the key performance indicators associated with each product line and revenue stream of the company. This analysis is then used to improve budgeting and develop a robust cost control program.

We can also provide accurate forecasts and budgets that enable our clients to properly manage costs on an ongoing basis and improve cash management strategies. All of these accounting and financial reports empower our clients with the financial information they need to make smarter decisions based on dispassionate financial analysis.

Want to learn more about all the ways Signature Analytics can help improve your decision making through visibility of financial information? Contact us for a free consultation.

What Fiat Can Teach Businesses About the Importance of Knowing Profit Margins

What Fiat Can Teach Businesses About the Importance of Knowing Profit Margins

“Don’t buy a Fiat 500e electric car” says the company’s chief executive, Sergio Marchionne. According to Mr. Marchionne, it has nothing to do with the quality and price of the car, but rather the cost associated with producing the car – specifically the battery – and its impact on the product’s profit margin. The chief executive admitted at a recent appearance, “I hope you don’t buy it because every time I sell one it costs me $14,000.”

As a business owner, it is easy to see if you are profitable, just take a look at your company’s net income; however, that number alone does not provide a complete picture. Fiat is a perfect example. Overall, the company is profitable; however, when you look at the profit margins for their individual products, they are actually losing money on one of their product offerings.

For a more accurate measure of how your company is doing, it is imperative to calculate your profit margins by product line.

Calculating Profit Margins

Profit margin is an accounting measure designed to calculate your profit as a percentage of sales. It can be used to evaluate your business as a whole or for each individual product line.

Why is this useful? The two main reasons are 1) to compare your profit margins on a monthly and/or yearly basis and 2) to establish your position against other companies in your industry.

To calculate gross profit margin, divide your gross profit, which is sales minus cost of goods sold, by sales.

Gross Profit Margin = Gross Profit (Sales – COGS) / Sales

Analyzing Profit Margins by Product Line to Increase Profitability

Let’s assume your company has $10,000 in sales for the month and your gross profit for that same month is $5,000. That would mean your company’s gross profit margin is 50%.

Some business owners may see these numbers and think “we’re doing great” and they might be; however, by taking a closer look at the company’s profit margins by individual product line, they may be able to identify opportunities to increase profitability even more.

Using the same example above, let’s assume that Product A generated $7,000 in sales for the month and had a gross profit of $3,000. Product B generated $3,000 in sales and had a gross profit of $2,000. In this example, the gross profit margin for Product A would be 42.9% and for Product B would be 66.7%.

Product A:
$3,000 Gross Profit / $7,000 Sales = 42.9% Gross Profit Margin

 

Product B:
$2,000 Gross Profit / $3,000 Sales = 66.7% Gross Profit Margin

Using this information, a company could consider adjusting their pricing and distribution strategies to increase their overall profits. One way to achieve this would be to increase the price or reduce the cost of goods sold for Product A to improve the gross profit margins for that product line. Alternatively, the company could adjust their promotional efforts to focus more on selling Product B since the margins are greater.

Referring back to the Fiat example, the company is unable to increase the price for their electric vehicle because the market will not bear it. They should eventually be able to reduce the manufacturing costs of the car battery, but that will take time. So for now, it seems that Fiat is taking the alternate approach and focusing their promotional efforts on their other product lines.

Improve Your Company’s Profitability

At Signature Analytics, we work with our clients’ management teams to properly identify and understand the profit margins of their business. This is accomplished by producing a detailed understanding of the cost structure and related sales price associated with each product line and revenue stream of the company. This profit analysis can also be shared with company investors and banking relationships to enhance investor relations and participation.

In addition to profit margin analysis, we can provide accurate forecasts and budgets that enable our clients to properly project EBITDA growth and allow for better cash management strategies. All of these accounting and financial reports – profit margin analysis, forecasts, and budgets – empower our clients with the financial information they need to make informed business decisions that help to increase overall margins and improve profitability.

Want to learn more about all the ways Signature Analytics can help improve your company’s profitability? Contact us for a free consultation.

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