KPM

Payroll Risks Generative AI For Businesses Financial Statements Sec. 179 Tax Deduction Health Care Plan Assessing Customer Credit QBI Deduction Cash Withdrawal Small business retirement Spouse travel expenses Accounting Software Strategic Planning Process Insurance Schemes Enterprise Risk Management Program Account-Based Marketing Wrong Software For Your Organization Operational Review Internal Benchmarking Reports Sales approach Capturing Data Older Workers Pooled Employer Plans Financial Statement Options BOI Reporting Rules Privileged Users Medicare Premiums DOL Business valuation Trust Fund Recovery Penalty Value-Based Sales Fringe Benefits Green Lease Strategic Planning Financial Reporting Marketing Strategy Succession planning health care benefits Cyberinsurance PTO Buying Media Screening Pipeline Management Billing Best Practices Solo 401(k)

Three Keys to Strong Business Financials

Businesses fail for many reasons — dysfunctional management, insufficient working capital, insurmountable competition. Why they succeed, on the other hand, is often easily explained. Regardless of size and sector, most healthy companies share the following three characteristics when it comes to their financials:

1. Ample revenue

No doubt your have heard it before, but this cliché is true: cash is king. Without a robust revenue stream coming in, profitability will be precarious. To determine how much revenue your company needs to be profitable, perform a profitability breakeven analysis. Then, review your sales and determine where you can make changes. For example, you may need to invest more in R&D or focus more on prospective customers.

2. Well-managed labor & production costs

For most companies, labor is their biggest production cost — particularly when benefits and taxes are factored into the equation. Determine whether your labor force increases the value of products or services enough to offset its high cost. If not, consider solutions such as:

  • Providing more training or better incentives
  • Improving production processes
  • Investing in more modern facilities

When production overhead costs are too high relative to a product’s sales price, take action. You might increase the price of the product, find better production methods or even discontinue the product.

3. Lean operations

Operating expenses — costs you incur to run your business that are not directly attributable to production — must be minimized. For example, compensation takes a big bite out of your operations budget, so monitor staffing needs relative to sales and adjust them if necessary. And while you cannot eliminate marketing expenditures, you can review your sales levels relative to them and ensure you are getting the most bang for your buck.

Establish a foundation

If you are trying to build the foundation for a healthy, long-lived business, focus on these three keys. For help applying them to your company’s specific size and situation, please call us.

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.