Let’s look at three factors that affect cash flow.

Accounts Receivable – Money in your Accounts Receivable, which represents money you are owed for goods delivered or services rendered, means you should soon have money coming in to your business. But if there’s a substantial amount of lag time between deliverables and getting paid, it will negatively affect your cash flow.

Credit terms – Many businesses operate on “net-30” or greater terms; your clients have 30 days or more to pay from the time they receive your invoice. If your Accounts Receivables get too high, you might consider changing your credit terms so customers pay faster.

Credit policy – If you offer credit terms to customers, how do you evaluate who is eligible to receive “net-30” or “net-60” terms? If your policy is too liberal, you might get stuck with slow paying or non-paying customers. But if you’re too strict, customers may look elsewhere to do business. A good, balanced credit policy can contribute to positive cash flow.

Your Part-time Financial Controller: The Voice of Experience

If you are a new business owner, or if your business is growing rapidly, these factors are all new to you. Managing them may not fall within your core competency, the reason you started your business in the first place.

A part-time financial controller has extensive experience with analyzing cash flow statements and providing a financial analysis of a number of factors to help you optimize business operations so you can focus on what you do best, serving your customers with the passion that comes from doing what you love.

Let’s look at a few task you might be better off contracting to another professional.

IT functions – When the computer breaks down, what do you do? Do you waste hours at a time on the phone with tech support? Call a friend? Your teenage son? If this is your solution to technology woes, it might be time to consider outsourcing some of your company’s tech functions to experts.

Marketing – Decades ago, an ad in the yellow pages, or maybe a local radio spot, gave your business enough leads. But your business was smaller then, and marketing was different, too. Hiring a marketing firm, or even a consultant who can share some tips, could be a smart investment to grow your business.

Small Business Bookkeeping – If your business is growing rapidly, but you’re still not sure if you’re in a position to begin outsourcing certain business processes, the first step is to contract a small business bookkeeper and part-time financial controller who can help you organize your books and then analyze your financials to help you decide where you stand in terms of needing, and being able to afford, additional outside help.

Of all the business functions, bookkeeping is one of the more specialized and one of the more complicated for small business owners to understand. Hiring a small business bookkeeper and part-time financial controller should be your first step toward growing your business.

If you work with a part-time financial controller, he or she will sit down with you and analyze important financial statements, as well as exploring your company’s day-to-day operations, to determine the overall financial health and stability of your business.

Analyzing Efficiency Ratios
One set of numbers your small business accountant will analyze is your efficiency ratios, in essence, how well your company manages its assets and liabilities to make money. Your financial controller will analyze these figures and then look at your business processes to make recommendations for incremental improvements, which can help create a more efficient business model.

For service-oriented business owners, with little-to-no inventory to manage, there are three main efficiency ratios to consider.

Accounts Receivable Turnover
Ideally, your accounts receivable, that is, money owed that is paid to the business, will be quick. Your Accounts Receivable Turnover ratio indicates the effectiveness of your credit policies. Are your clients paying you in a timely manner? If so, this ratio will be high.

Accounts Payable Turnover
The Accounts Payable turnover is calculated by dividing the average accounts payable by the cost of sales. A lower accounts payable turnover ratio means your business is getting good terms for paying bills. In general, a good accounts payable turnover ratio can improve your company’s cash flow.

Total Asset Turnover
This efficiency ratio, in general, shows how effectively you are using short-term and long-term assets to manage cash flow. A strong business is always in motion, with payments coming in and going out. A high total asset turnover typically indicates an efficient business model.

How Can a Financial Controller Help?
If you’ve never worked with a small business accounting firm or part-time financial controller, you may have a general idea of how efficiently your business operates. But seeing your efficiency ratios in black and white, and having a professional help you understand them, offers new insight into your business that can help you improve business processes and, as a result, grow your business.

It’s good to understand the basics of bookkeeping and financial accounting in order to have more informed conversations with your part-time financial controller. But it’s definitely not necessary. Part of our goal here at The Controllership Group is to consult with our clients, business owners just like you, in plain English so you can make the right decisions and take better financial control of your company.

If balance sheets, profitability ratios and calculating ROI still make your head spin, and you’d rather be focused on your core competencies, the reason you started your business in the first place, we understand.

After your full-charge outsourced bookkeeper gets your books in order, your part-time financial controller will explain exactly what all the numbers mean. What kind of shape is your business in? How can you increase profits to create a healthier company? Are there areas where you can reduce expenses?

You won’t need to sift through spreadsheets or look at numbers in columns for hours. We talk to you as a business professional, providing real actionable information about your growing company. We’ll take part in financial forecasting, to see where you might be in the future, and, together, devise an action plan to improve that forecast.

The Controllership Group wouldn’t be where we are today without our clients. It’s our goal to help you achieve the level of success that you’ve always imagined, without letting a lack of bookkeeping and financial accounting knowledge get in your way.

Are you ready to really understand how you can improve your company’s financial picture? Maybe it’s time to give TCG a call.

At The Controllership Group, we work with Indiana based small business owners to balance their books and then analyze their financial statements to identify steps our clients could take to create a healthier business.

Typically, we’ve noticed several ways business owners are spending money when they don’t have to.

1. Payroll – Often, owners in rapidly growing businesses think hiring new personnel is the best way to keep pace with rapid growth. While hiring new personnel, such as an outsourced bookkeeper and part-time financial controller, may be a smart business move, hiring employees is not always the right answer.

In other situations, if you are shelling out large amounts of overtime to employees, it could make sense to increase your roster to handle the ever-growing workload for less money. This may also help prevent employee burn-out.

2. Administrative expenses – In addition to adding more personnel, businesses may find administrative costs increasing due to things like higher fees or new, complicated processes and procedures. Make sure you’re not managing rapid growth by creating a multi-level bureacracy, which is both costly and time-consuming for a small business owner.

3. Equipment maintenance – Your business is selling more, doing more and producing more. Older equipment, from workstations to servers or even heavy equipment, may not be able to keep pace. If you’ve been spending too much on unscheduled equipment maintenance, it may be time to invest in new equipment and reduce costs in your growing business.

If all this seems overwhelming, you’re not alone. A small business bookkeeper and part-time financial controller can help you make the right business decisions as your company grows. The investment in an outsourced bookkeeper is one you won’t regret.

But you may not know how to analyze the information in an income statement to determine important facts about your business. When you understand your financial statements, you can make the right choices to help your business grow. That’s where a part-time financial controller’s knowledge and experience can help.

Let’s look at several ways you can use the data in your income statement to analyze, and improve, your small business.

Analyze Sales Trends

As you review your income statements over time with your part-time financial controller, you’ll begin to notice sales trends. Are sales going up at the rate you want based on your company’s age, size and the current marketplace?

Analyze Profit Margins

As your business grows, profitability should remain level or increase. You should not lose profits as you sell more. By dividing your gross profit by sales, you’ll determine if you are charging the best prices to maintain profitability.

Analyze Selling Expenses

Similarly, as your sales increase, expenses should rise in the same proportion. In some cases, expenses may even decrease with an increase in sales.

If your selling expenses are increasing disproportionately to sales, a part-time financial controller can help you analyze your income statements and other financial records and see where you can reduce costs without sacrificing quality.

Strong liquidity ratios are one indicator of a healthy business. You may want to show strong liquidity ratios if you are applying for a small business loan or seeking investment capital.

In general, here are three ways you may improve liquidity ratios on the books.

1. Obviously, if you can afford to pay off your current debt liabilities with cash, your current liquidity ratio will improve. Of course, your cash on hand will decrease, which could affect other financial ratios. Your financial controller can advise you on the best course of action to pay down some of your debt while maintaining an adequate amount of cash.

2. Take out a long-term loan to re-pay short-term debt. Since long-term debt often has smaller monthly payments and lower interest rates, you may save money in the long-term while also improving your liquidity ratio, which accounts for only short-term debt.

3. By submitting invoices sooner, you can increase your accounts receivable, which will improve your liquidity ratio.

4. You can delay purchases to reduce accounts payable and short-term debt.

5. Depending on market conditions, you may be able to place a higher value on your inventory, increasing your assets on paper.

A part-time financial controller can help you analyze your financial statements and determine the best course of action for your small business.

Strong liquidity ratios are one indicator of a healthy business. You may want to show strong liquidity ratios if you are applying for a small business loan or seeking investment capital.

In general, here are three ways you may improve liquidity ratios on the books.

1. Obviously, if you can afford to pay off your current debt liabilities with cash, your current liquidity ratio will improve. Of course, your cash on hand will decrease, which could affect other financial ratios. Your financial controller can advise you on the best course of action to pay down some of your debt while maintaining an adequate amount of cash.

2. Take out a long-term loan to re-pay short-term debt. Since long-term debt often has smaller monthly payments and lower interest rates, you may save money in the long-term while also improving your liquidity ratio, which accounts for only short-term debt.

3. By submitting invoices sooner, you can increase your accounts receivable, which will improve your liquidity ratio.

4. You can delay purchases to reduce accounts payable and short-term debt.

5. Depending on market conditions, you may be able to place a higher value on your inventory, increasing your assets on paper.

A part-time financial controller can help you analyze your financial statements and determine the best course of action for your small business.

When you hire a small business bookkeeper and part-time financial controller, the first step is to balance your books. When that is done, you will meet with your part-time financial controller, who will soon become a trusted business advisor.

Among other financial analyses, your financial controller will calculate your business profitability ratios and offer suggestions to improve them. You’ll see the return-on-investment for your part-time financial controller shows up very quickly and continues to grow as profits improve.

Let’s look at five profitability ratios that can indicate how well your business is doing.

Gross profit margin ratio – Your financial controller determines this figure by analyzing your income statement. The gross profit margin ratio is gross profits divided by sales, or how much money you’re making from sales. Your financial controller can tell you whether you have a healthy profit margin based on industry standards, or offer suggestions to improve profitability.

Operating profit percentage – The operating profit percentage looks at your profits after all your operating expenses are taken out. It is calculated by dividing operating income by sales. Evaluating this number over time can show you if sales are keeping pace with operating expenses if they increase over time.

Net profit margin (Net profit percentage) – This figure is the one most business owners are accustomed to looking at, as it shows how much money is available following each sale, after all taxes and expenses are taken out.

Return on assets – This figure, the ratio of net income to total assets, indicates how well a business uses assets to generate more income.

Return on equity – This figure, often called the return-on-investment, shows how much you’ve earned on your equity investment as the business owner.

What’s the ROI of Your Indiana Small Business?

Hopefully, your return-on-investment is enough to keep your business running. A part-time financial controller can help you evaluate your business and offer suggestions to improve profitability so your business, and ROI, can continue to grow.