A systematic financial review can lead to greater profits

There are several elements within a small business environment that should be analyzed and reviewed to establish potential profitability as compared to current performance.

Financial statement review
In a review, three to five years of financial statements should be analyzed and categorized. Compare the performance of each category within the chart of accounts over the financial review time period.

Break down each dollar amount into a percentage of revenue to determine operational variances within each line item. Review individual circumstances that contribute to variances and their impact on company profitability. Combine the best performing percentages to establish the business’s optimal financial performance.

Quantifying financial impact
The financial impact of a business owner’s management practices should be reviewed.

• Accounts receivable
• Inventory analysis
• Sales and margin mix
• Break-even pricing
• Labor incentives
• Reducing variable or direct costs

Benchmarking
Review the performance gaps between your business and peers within the industry. Identify gaps in profitability, productivity, costs and financial ratios. That information should be combined with the problem costs associated with the lack of appropriate and consistent systems and controls, in addition to procedures that must be embraced and implemented to achieve desired company profitability.

Each business is unique and should take into account special considerations when establishing its viability.