As an entrepreneur, understanding your company’s financial health is essential for making informed decisions and spurring growth.
However, navigating the complexities of financial metrics can be a daunting task. This is where a skilled accountant becomes invaluable. They can help you track critical financial metrics and advise on increasing efficiencies and profitability.
Indeed, according to recent research, 48% of small business owners believe their accountant is their most trusted financial advisor in the business world.
This article will run through four key financial metrics accountants can help you monitor and optimise. Read on to learn more.
Cash Flow
Cash flow refers to the movement of money in and out of your business over a set period. Positive cash flow indicates that your company has enough liquidity to cover operational expenses, invest in growth and adapt to various financial challenges.
Accountants prepare cash flow statements and forecasts in their financial reporting, containing full details of your inflows, outflows, and market trend data to help you prepare for potential cash shortfalls.
What’s more, they can also implement cash flow strategies like optimising accounts receivable and accounts payable processes, ensuring that you have enough working capital to meet your financial obligations.
Customer Acquisition Costs
It’s a well known fact among business leaders that it costs more to attract a new customer than to convince a previous customer to buy again.
Customer Acquisition Costs (CAC) are a key metric that measures marketing spend, sales team expenses, and other costs associated with attracting new customers in financial reporting.
Understanding CAC is, therefore, essential for monitoring the effectiveness of your marketing and sales efforts.
An accountant can not only help you calculate CAC, but they can also advise on which marketing channels are most effective for your brand and allocate resources accordingly. This can help entrepreneurs ensure their promotional campaigns align with their brand values and business objectives.
Working Capital Ratio
Working Capital Ratio (WCR) in financial reporting measures your company’s ability to cover short-term liabilities with short-term assets. It’s a simple financial metric to calculate (i.e., divide current assets by current liabilities), but an accountant can provide more in-depth insights into your liquidity positions.
For example, they have experience from working with brands like yours in developing strategies that can help you reduce your liabilities while ensuring that you remain agile and responsive to new opportunities.
Moreover, they can help you secure business funding (read more about this in our previous article). Or, they can help you optimise your inventory management practices, ensuring that you maintain the right stock level to meet customer demand without tying up excessive capital in unsold goods.
Gross/Net Profit Margin
Your Gross Profit Margin measures how efficiently you produce goods and services. Meanwhile, your Net Profit Margin reflects your overall profitability after all expenses are deducted from revenue. Together, these critical financial metrics help determine the best pricing strategy and how you can improve operational efficiency at your company.
An accountant can analyse these numbers in your financial reporting over time and use additional market trend data to help you plan more profitable cost structures or advise on cost-cutting measures to boost your bottom line.
INAA: Helping Entrepreneurs Connect with Worldwide Accounting Experts
As an entrepreneur, partnering with a reputable accounting firm will ensure you have all the information you need to interpret vital financial metrics accurately and make the right decisions to expand your business.
Here at INAA, we connect accounting and auditing professionals from 50 countries, providing events, resources and networking opportunities where business owners like you can harness their expertise to drive your brand forward while you focus on what you do best, delivering a great service.
If you want to learn more about our association, read our benefits for clients page here. Or, if you’re an accountant, sign up to become an INAA member now.