Go over each line item, and compare it with the previous month’s P&L. If you don’t understand what a line item represents, find out. The numbers should make sense to YOU, not to your accountant. And if you haven’t already, organize the line items so that similar items are closer together. The default setting in most financial software usually lists the expenses alphabetically. For example, it makes sense to see “Product Packaging Materials” next to “Merchandise Purchased for Resale.” Feel free to combine line items to make your P&L more concise, and/or break apart line items to show you more details so you can make some sound business decisions based on what the numbers are telling you.

COGS – Cost of Goods Sold
Also referred to as the “cost of sales,” COGS are the direct costs attributable to the production of goods sold. This includes material cost and production (labor) costs but does not include indirect cost like advertising or R&D. COGS will show up on your P&L Statements. Watch the percentages, not the actual dollar amounts from one month to the next. The percentage should stay pretty much the same with regards to revenues.

EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization
This is the most complicated of the acronyms we’re discussing today, but essentially EBITDA measures the core income that your company earns before your cover your debt payments and income taxes. It’s an indicator of operating performance and profitability, but it’s not a good measure of cash because it doesn’t include changes in working capital.

EBITDA is a good way to measure your profitability, but be forewarned: even businesses with a great EBITDA can go out of business due to cash flow. EBITDA leaves out the cash needed to fund working capital and the replacement of old equipment. Profits are great, but if you have no cash, your business will “bleed out” pretty quickly.

BEP – Break-Even Point
This is one of those numbers you want to know by heart and just like it says, this important indicator tells you at what point your business “breaks even.” It is the dollar amount of revenues that exactly covers all your operating expenses (variable and fixed costs), with nothing left over for profit. It’s an important indicator of risk because it shows you how close your business is to the “no profit” line. For instance, if your business is currently producing revenues at the level of $100,000 per month, and your break-even point is $60,000 per month, you are comfortably above your no profit line. You want your BEP swimming in your head at all times. It’s your minimum target for slow months, and it’s where emergency on your hands.

CR and QR: Current Ratio and Quick Ratio
Current Ratio = [Current Assets ÷ Current Liabilities]
The current ratio measures your ability to meet short-term obligations by determining if you have enough current assets to cover current liabilities. Ideally, your current ratio should be near 2.00, meaning your current assets are two times, or 200%, of your current liabilities. If your current ratio is below 2.00, your short-term debt-paying ability is reduced. This is an unstable financial position, and you should examine your finances to see where improvements can be made. If your current ratio is above 2.00, you have above average debt-paying ability; however, if it is too high, it may mean that you are not utilizing your assets effectively. If it’s below a 1, then you’ve got an emergency on your hands.

Quick Ratio = [(Current Assets - Inventory) ÷ Current Liabilities]
Like the current ratio, the quick ratio measures short-term debt-paying ability. It is calculated without inventory because inventory is not as easy to turn into cash as your other current assets. Thus, the quick ratio examines assets that can be turned into cash in the least amount of time. Businesses that carry a lot of inventory need this important planning tool. Ideally, your quick ratio should be at 1.00 or higher. If it is lower than 1.00, you may have trouble meeting your current obligations. Below 0.5 is an emergency. Note that if you don’t carry inventory, your current ratio and quick ratio will be the same.

This doesn’t have to be  complicated, or difficult
You don’t have to be a finance expert; you just have to understand enough to make the decisions that matter. You begin all of your budgeting and forecasting. At a minimum, your revenues (sales) should be at least as high as your BEP. The goal, of course, is to increase this number over time so that revenues (sales) are above the BEP.

Cash is an asset.  Period.  It is never a liability; never an expense; never anything but an asset.  Cash is a current asset, and serves to increase the net worth of whoever is in possession of the cash. Deferred revenue provides cash, but it also establishes a liability because it represents a future event. All deferred revenue will become revenue at some point. You will have to pay sales tax, income tax and possibly royalties eventually.

If your deferred revenue has an expiration date, it becomes revenue on that date. If your deferred revenue does not have an expiration date you will need to develop a procedure for expiring unused services.  Anything sold but not redeemed must become revenue at some point. The IRS will not allow you to carry deferred revenue on the book indefinitely. If you don’t have a procedure to recognize this unused revenue they will give you one. Their procedure will accelerate revenue recognition faster than you may want.

How can a business owner use deferred revenue to help their business? It comes down to cash management. During slow periods cash becomes a problem. Selling products or services in a slow period that will be redeemed at a later date is a way of evening out your cash flow. You might have to provide an additional incentive to buy now and collect later, but the discount might be worth the value to you of accelerating cash flow.

In these hard economic times, when banks are not as forthcoming as they have been, it might be wise to find a way to “float a loan” from your customers. Careful accounting is important. You don’t want to sell what you can’t deliver. Understanding the future consideration of your deferred revenue is critical to long term success. Using gift certificates or pre-paid services might be a way of getting over that financial hump in the middle of your down cycle.

Roam is an innovative meeting, dining, and gathering place for a new progressive workforce. They are dedicated to people on the move that need a better way to connect with others, work productively and grow their businesses. As they expand their operations they need a consistent and accurate view of business performance across all locations. Roam looked to eProcess Pros to provide uniform accounting, business intelligence and customer relationship management in one easy to use portal available from anywhere there is internet access.

We are in an era when driving sales is becoming more and more competitive. Not just from traditional competitors, but from the entire ecosystem of products and solutions targeted toward your prospect profile. Now more than ever progressive Best-in-Class companies are looking for innovative ways to be more effective in sales. They are looking for ways for their sales organizations to rise above the noise of the marketplace.  A fully integrated customer relationship management system tied to well conceived inside sale organization is one of the best tools to achieve this.

No technology enabler is more frequently cited by the Best-in-Class as email-integrated CRM

The Aberdeen Group in conjunction with Salesgenie.com, Front Range solutions, Vanilla Soft, Jesubi, Live Person and Customer Solutions Group completed a study analyzing best practices for inside sales.  Some findings are:

Competitive Advantage comes from:

1. Collaboration between marketing and sales to agree on lead definitions
2. Provide Inside sales with access to prospects/customers business intelligence data.
3. Support an e-mail integrated Customer Relationship Management systems.

Required Actions:

1. Pay attention to the organizational structures around inside sales by ensuring that their mission is supported by process, technologies and direct links to goals of the entire organization.
2. Amplify the conversation between inside sales professionals and their audience, with a rich flow of pre-call information that benefits the seller, and real time, market-facing applications relevant, customized, both for the buyer and the seller.
3. Mine inside sales for best practices that can be optimized by other sellers such as field sales and channel partners.

Some of the more important aspects of reaching Best-in-Class are:

1. Provide more consistency for prospects/customers interactions with your company
2. Focus “Closers” on closing not prospecting
3. Automate the capture and processing of customer data
4. Reduce response times to increase contact and qualification rates

Read Full Report (click here)

Gartner Consulting recommends that CFOs consider delegating transactional tasks to a third party whose core business is finance and accounting BPO.

“Outsourcing some of the finance and accounting processes that are focused on tasks such as accounts payables, expense management, and payroll, frees up the CFO’s time,” said Michael Montonen, vice president for Gartner Consulting’s Strategic Sourcing Practice. “The CFO can then focus more on activities such as planning, activity-based costing, process metrics and decision support at the CEO and business unit leadership levels.”

“To achieve true shareholder value, the efficient CFO has to focus on decision support, a strategic activity that makes it possible to focus on analyzing and interpreting financial data, not necessarily producing it,” Mr. Montonen said. Outsourcing capabilities to support processes for financial transactions and management have matured substantially, with financial data often generated and reported now by service providers, he said.

Top 5 Reasons Companies Outsource

(Executive Survey: The Outsourcing Institute’s Annual Survey of Outsourcing End Users)

1. Reduce and control operating costs
2. Improve company focus
3. Gain access to world-class capabilities
4. Free internal resources for other purposes
5. Resources are not available internally

Business Process Outsourcing Finance and Accounting

Your accounting services no longer have to be tied to a back-office bookkeeper – they can now be done virtually over the internet in real-time for you to access, anywhere, anytime.

eProcessPros can provide you with the following services online using Peachtree, QuickBooks and other software packages. We understand that each business has unique needs. We create a custom accounting solution to fit your business.

Our services can include any combination of the following:

• Daily bookkeeping. Simply scan in documents and receipts. Our professionals are alerted to your upload, we then input the data. Your bookkeeping is now reduced to simply scanning documents.
• Payroll. We can quickly and seamlessly manage and track your payroll service and protect sensitive payroll data from employees. This includes providing you with verifying reports and doing necessary filings.
• Accounts Payable. We can oversee the accounts payable processing and can provide you with an accurate picture of your accounts at all times.
• Accounts Receivable. We keep accounts receivable updated so the information you need is right at your fingertips.
• Financial Statements. Monthly, quarterly and yearly financial statements are easily produced and available online for download at any time. Each month your CPA will review your statements and reports making suggestions when appropriate.
• Notification. Uploads and downloads of information and materials generates automatic email notification between you and eProcess Pros.

Recruiting and retaining experienced and reasonably priced bookkeepers is a challenge.

eProcess Pros features a team of accounting professionals and the best software on the market to give you instant secure Internet access to your financial data – all at a fraction of the typical administrative costs.

Our virtual accounting services include:

• Full-service bookkeeping
• Accounts receivable deposit entry and application of payments to client ledgers
• Review of accounts payable vouchers coded to general ledger
• Payroll journal entries posting
• Bank statement reconciliations
• Monthly financial statements
• Monthly management reports

The companies that gave over half of their workforce business intelligence from which they could drive activity got pressure to increase output to meet customer demand along with pricing pressures. The rest were dealing with aligning cost with falling revenue forecasts. Half as many Best-in Class companies were dealing with falling sales as all others. Cash is still king. Best-in-Class companies used business intelligence information to better understand their receivables issues. Business intelligence can be used in many ways to assure cash is not compromised. Managing “days sales outstanding” to insures that cashing is coming in at the same or faster rate that cash is going out is critical.

Business intelligence also helps businesses track sales back to marketing leads and marketing cost. This is a two edge sword from the standpoint of both concentrating on the highest value opportunities while reducing the spending on non-performing cost. Best-in-class companies make the best use of performance dashboards and scorecard tools, uniform data collecting and cleansing and enterprise performance management.