Your business financial statements are more than a diary of where you’ve been. They also present a map of where you’re headed. Inspection of a few key details will alert you to alter your path if you aren’t pleased with the upcoming destination.
Start by checking your revenue per employee. Identify the likely causes for shifts in this ratio. When it creeps upward, you may have invested in better equipment or more efficient technology. If revenue has increased to a permanently greater level, new hiring is typically necessary. A falling ratio signals declining production from outdated equipment or excess staff. Consider whether capital investments could enhance output efficiency.
Compare the percentage change in revenue to fluctuations in expenses for staff, marketing, advertising, and maybe some other categories. For example, if you initiated a program of taking customers to lunch more often, did bigger meal expense lead to rising sales? Perhaps spending to overhaul your website attracted more business. This situation calls for a focus on website content over print advertising.
Businesses that rely upon repeat sales to customers want to know if revenue deviations are the result of variances in sales to existing customers or changes in the number of customers. The ratio of revenue per customer is a sound guideline. Sophisticated financial records should also disclose which services or products are contributing to higher revenue and higher gross profit margin. Don’t operate on gut feeling when official numbers are right at your fingertips. Meet with your accountant if you need help in this direction.
The Finance Writer 