Learn how your business can be transformed into a thriving and successful enterprise through our series of lessons designed to help Salt Lake City business owners understand how to manage their finances effectively. Take away the knowledge of the experts.
What lead do you have weighing down your business and preventing your success? Years ago, it was believed that through the artistic process of manipulating the structure of lead, the dull and lifeless mass could be turned into gold. This process of changing matter was referred...
Why are numbers important outside of requesting loans from banks and preparing taxes? The answer to this question is vast, but I would like to use an analogy to summarize the answer to this question. Would you rather travel across the country in a compact car...
What are the positives of your business? I say positives because with the exception of some Capital accounts, the accounts that add positive value to your company are asset accounts. Assets are things that you own and are valuable to your company and its operations. Assets can...
What are the negatives of your business? Your Assets are, for the most part, your positives and your Liabilities are, for the most part, your negatives. Your Liabilities are basically what you owe. Back to the car analogy, your shiny exterior is your Assets and the interior...
What is under the hood of your business? Freedom is without argument the foundation for the American Dream. The easy access to capital has led many Americans to achieve their greatest dreams here in America. Capital is the private financing of a business and, in essence, the...
How fast is your company progressing toward its financial goals? We have discussed your car in great detail. I am going to add two other posts to our car analogy that will help to illustrate the importance of the different Financial Statements. The Profit and Loss...
How far can your business go at your current rate of operation? Knowing your gas mileage is not mandatory to drive your car, but it can certainly help. You don’t have to know how much gas is left in your tank either, but you may run...
I begin this post with two disappointing bits of news. Number one, I will not be continuing the car analogy with this post and number two is that I think a little more background is important before we dive into the meat of analyzing and...
Our next step toward understanding profit takes us back to our Thanksgiving pie analogy. If you remember, I am able to figure out ahead of time who would be coming to dinner and how much some of them will eat. What is left now is the...
Once you have put together the total amount of pie that will be eaten for the meal by determining the fixed and variable, you can then get around to the original question of how much pie you get for yourself. If I determine that there are...
When my littlest brother was much younger than he is now, he used to ‘play’ by lining up his toys. Organizing was playing for my brother. Well that just seemed wrong to me so I would patiently wait for him to finish lining up his...
So to continue on with our discussion on understanding ratios...
As with all ratios, it is important to refer back to the previous lessons on ratios so that we can understand the Sales Growth ratio better (even though this one may be quite naturally understood). Let's take a look at the equation first so that we...
The Sales Growth Ratio equation can be expanded, and usually is in its more common form. The expanded equation is: Sales Growth = 100 * ((Net Sales This Year - Net Sales Last Year) / Net Sales Last Year) So what have we done with the equation?...
The Sales Growth Ratio is important to track so that you can better understand your sales and see if there is a weakness in your sales. This number can be compared to the same ratio from previous years or across companies within the same industry...
Affordable Growth Rate, or AGR, is best illustrated with an elastic. Elastics are typically used to hold things together. The key characteristic of an elastic is its stretch. Similarly, AGR is used to hold a business together and the characteristic it measures is how far a...
AGR is a horizontal analysis tool because you are going to use numbers from two different years and compare these numbers to determine how well supported your growth is currently. Additionally, you are going to use one number from the Profit and Loss Statement and one...
Continuing on with the AGR discussion, let's now modify the equation a little. First, this ratio is another one that is commonly viewed as a percentage, so we will multiply the result by 100 to more easily express it as a percentage. Second, though I think it...
Affordable Growth Rate by itself does not really give us enough of a story for us to know if the resulting ratio is good or bad. If you are able to track the AGR over several periods, then you can start to make some sense of...
Sales Growth Consistency is a very simple equation and does not contain any ratios. The purpose of Sales Growth Consistency is simply to track the number of years that the sales of the company have grown. The equation is an IF-THEN-ELSE statement. If you do not...
Really the application of this is quite simple. Most business owners already do this ratio on the fly. The application is quite simple also. If you are at a zero, then you need to go over your marketing plan and your sales processes to figure out...
I mentioned the carnival game I used to enjoy playing when I was young. I liked playing that game because I could guess pretty well what the speed of the third ball would be based on the speed of the first two throws and win...
The Break Even Sales Factor is a very simplified way to find out how much you need to sell in order to turn a profit. The most accurate way to determine this is to use the method discussed under the Contribution Margin topic, but that...
The equation for this ratio is quite simple and here it is: (Gross Profit/Total Expenses) X 100 = Break Even (as a percentage) So to understand the results, we refer back to the article on Understanding Ratios. We want the Gross Profit to win, but we are...
Spending money you do not have is very common in our society. Many people every day overextend themselves and then end up chained to a debt that grows and grows with no real hope of breaking free. The cash flow of a business can be quite...
One day when you have nothing better to do, take a roll of masking tape and mark out the floor of your whole office into a one-foot square grid. Count all of the squares and make note of how many squares there are in your...
As you very well may have guessed, the equation for Revenue to Space is: Revenue/Total Square Feet of Office This can also be used for warehouses, plants, etc. The result will be dollars per square foot and will give you an idea of the earning power of each...
There are many different ways that the Revenue to Space Ratio can be beneficial. I will mention two of them here--a retail store and in making decisions about new spaces. Anytime that you are selling in your store or office this ratio is useful. You may...
If you were in a little rowboat with a leak in it, you would be quite happy to have a bucket. The most pressing question you may have would be how many times you had to fill that bucket in order to keep your boat...
This equation, similar to the Revenue per Square Foot equation, is quite simple. NET REVENUE/# OF EMPLOYEES So by using the methods discussed in the Understanding Ratios posts, we know that we want the Net Revenue to be the winner and that we are looking at the...
This ratio is another ratio that is beneficial to track over a period of time. More important than the number is the change of the number over a period of time. If the number drops quite quickly, it indicates either a rapid loss in sales, which...
Gross Margin Factor is very important for managing the finances of a company. We use this ratio all of the time in real life and do not realize it. Pretend for a moment that your child/niece/nephew/neighbor is doing a fundraiser for his or her team. The...
