10 Key Financial Metrics and KPIs for eCommerce Business Owners

Financial Metrics and KPIs for eCommerce Business Owners

Running an eCommerce store is an incredibly challenging venture. You must monitor sales, oversee the latest marketing efforts, and make sure your team has the tools they need to perform at peak levels. 

In order to effectively accomplish all of these various tasks, you must become an expert at eCommerce bookkeeping.

Put simply, eCommerce bookkeeping refers to the process of tracking various financial metrics that impact the success of your business. Without a strong understanding of these indicators, effectively managing your online store will be nearly impossible.

With that in mind, the experts at Visory have created this helpful guide. Our team specialises in online bookkeeping services that help eCommerce sites track essential data.

Below, we’ll outline the ten key eCommerce financial metrics that you should be tracking. 

How to Measure eCommerce Success

If you have been searching for a way to quantify your eCommerce success, online bookkeeping is the answer. It is important to thoroughly track relevant data about your business’ performance and sales. Each category of data is known as a key performance indicator (KPI).

With modern software, you can collect information on just about any metric imaginable. However, not all eCommerce financial metrics give accurate insights into your business. If you pay too much attention to the wrong KPIs, then you will have an incomplete picture of your store’s overall health.

Many eCommerce stores opt to use third-party eCommerce bookkeeping services. These firms specialise in monitoring KPIs and compiling relevant data for your business. They can provide you with regular reports on your business performance. You can then use this information to detect trends, refine your business model, and generate more revenue.

How often should you check your eCommerce financial metrics?

 This depends on a few factors. 

For instance, if you have just switched to a new page theme, then you should check your metrics each week. This is because a new theme can drastically impact the way consumers interact with your content. Your new theme may lead to changes in traffic volume or cart abandonment rates.

More established eCommerce stores may only need to check eCommerce financial metrics bi-weekly or monthly. There is no one-size-fits-all answer. The best solution will depend on your business’ current health and growth projections.

Metrics

Now that we have covered online bookkeeping services and how often you should check your KPIs, let’s dive into the list. Our top ten eCommerce financial metrics include:

1.   Revenue

Our first pick is pretty straightforward. Every business owner actively tracks their overall revenue (even those who are not very interested in analysing data).

However, revenue gives a very narrow view of an eCommerce store’s performance. Having high top-line revenue is great. But it is a useless statistic unless it’s paired with other eCommerce financial metrics. 

2.   Profit

Profit gives a much better picture of your eCommerce store’s health and performance. If your revenue is rising, but your total income is not, it is likely because you are leaking money in another category. This inconsistency may be due to unusually high operating expenses or disproportionate acquisition costs.

When you’re calculating profits, make sure to account for all expenses. We suggest monitoring profits weekly, especially when your business is young. That way, you can continually look for ways to reduce expenses and improve profitability.

3.   Average Order Value (AOV)

Average order value is one of the best eCommerce financial metrics for gauging customer loyalty and interest in your products. The AOV refers to how much the average customer is purchasing each time they checkout.

Driving up your AOV is a simple, but effective alternative to generating new site traffic. There are several great ways to boost AOV, such as:

  • Rewards programs
  • Selling bundled items
  • Upselling with add-ons at checkout
  • Mix-and-match deals

If you find that your AOV is low, using the techniques above can incentivise consumers to buy your products in larger quantities.

4.   Customer Lifetime Value (CLV)

Most of the eCommerce financial metrics on our list are great for just about any business. However, this next one is most suitable for established online stores with a strong customer base. 

CLV refers to the total amount that a consumer spends at your store throughout their entire “lifecycle.” The CLV will vary greatly, depending on what industry you are in.

eCommerce stores that sell consumables and health products may have customer lifecycles of five years or more. On the other hand, a business that sells specialty automotive parts may have extremely short customer lifecycles.

5.   eCommerce Conversion Rate (CVR)

Ever wondered how many visitors to your site are actually making a purchase? If so, then you need to be tracking your eCommerce conversion rate (CVR). 

Like most eCommerce stores, you probably get a lot of passive traffic. We are referring to the customers that “browse” your site for 30 minutes to an hour, only to leave empty-handed. That is okay because some of these consumers will likely return and make a purchase at a later date.

Still, it is important that your business has a healthy CVR if you want to remain profitable. We consider a CVR of about 5% to be a healthy start. 

If your CVR is below this baseline, then it is time to make some improvements. Even a small rise to your CVR can translate to a huge increase in profits.

For example, let’s say that your site earns 500 visitors per day. A CVR of 3% means that only 15 people are making a purchase. By increasing your CVR to 5%, your business will facilitate 25 purchases per day. If each client is spending $100, that is a revenue increase of $1,000 daily! 

6.   Customer Acquisition Cost (CAC)

Many new entrepreneurs tend to overlook a few vital eCommerce financial metrics. CACis definitely one of them. CAC is a pretty simple KPI at face value. Low CAC is great for profits. 

Your CAC should be much lower than your revenue. Let’s say you are spending $20 AUD to acquire each customer. If the average consumer is buying $100 worth of goods, then your CAC ratio is good. However, a CAC that is nearly even with or higher than a consumer’s average purchase amount, could put your business in trouble!

7.   Return Rate

In addition to watching your CAC, you need to track your return rate. If you are processing lots of exchanges, chargebacks, and refunds every month, your profits will suffer. Processing returns are a real pain for your service staff to deal with, too! 

Refund rates vary greatly by business type. When you first begin tracking eCommerce financial metrics, look for comparable stats within your same industry. If you sell apparel and your top competitors have a refund rate of 5%, try to keep your numbers below that level. If your rate is higher, you also need to look at the reasons why. Is it quality, change of mind, wrong product?’

8.   Cart Abandonment Rate

Modern eCommerce software allows business owners to track cart abandonment rates. This occurs when consumers put items in their online cart and leave your store without completing their purchase.

While a high cart abandonment rate may be a bit concerning, it also presents an opportunity. If consumers are loading their carts up with your products, they have a high interest in making a purchase. You may just need to give them a little extra incentive to follow through.

We recommend implementing an automated email campaign. This strategy will target consumers that abandon their carts. You can send them encouraging messages that will prompt them to complete their purchase. 

If you really want to sweeten the deal, include a digital coupon or shipping discount.

9.   Gross Margin

If you plan to scale your business, then gross margin is one of the most important eCommerce financial metrics to track. 

Gross margin is the profit that you are left with after factoring in the cost of goods sold. Unlike some other metrics, gross margin accounts for the cost of acquiring inventory. 

By examining gross margin, you can determine whether your current level of growth is sustainable. Make sure that you have strong margins before you attempt to scale your business. Otherwise, you may find that you do not have the funds needed to keep inventory in your warehouse.

10. Traffic Volume

Traffic volume is a broad KPI that refers to how many visitors your site receives. You can break this stat down into smaller metrics, such as bounce rate, time spent on site, and average page views. Each of these KPIs can help you understand exactly when consumers are leaving your website. 

For instance, bounce rate refers to the number of users that navigate to your site and leave before viewing additional pages of content. A high bounce rate may be a sign that your site is not visually appealing enough. It may also indicate that page load times are slow, which quickly discourages potential customers. 

Increasing your site’s traffic volume is an essential part of growing your eCommerce store. You can drive more traffic by leveraging various marketing efforts, including paid ads and search engine optimization (SEO) practices.

Closing

That rounds out our list of the top ten eCommerce financial metrics that you should be tracking. 

Now that you know which data to monitor, it is time to put these numbers to use. Leveraging these KPIs can reveal how well your business is really performing. You will be able to identify what you are doing well and which areas need to be improved upon.

If you are still unsure how to begin tracking your eCommerce financial metrics, contact the team at Visory. We offer our clients exceptional online bookkeeping services at affordable prices. 

Our team will provide you with detailed reports on the health of your online store and regularly check your key metrics. This means that you will have more time to focus on other important tasks, like scaling your business. Supercharge your financial back office with Visory!

CFO Services: When Your Business Needs a Finance Expert (and How Visory Can Help)

As your business graduates from a small operation to an organisation with a full back office, you’ll need to hire new financial experts. Growing your business requires careful planning and forecasting. But, what if you’re not quite ready to pay the salary of a Chief Financial Officer (CFO)? That’s where virtual CFO services come in handy.  

A part-time, remote CFO leads your team onward and upward without eating up your back office budget. You can even use a virtual CFO to attract a potential buyer if you want to position your company to be acquired. Let Visory help you determine when you need a CFO and how to leverage CFO services to expand your business. 

What is a CFO and what do they do?

A CFO plays a vital role in any growing company. In fact, enterprise businesses absolutely need this position to scale and succeed. This is because a CFO goes above and beyond daily accounting duties. While your accountant is running payroll and keeping the general ledger in line, your CFO is taking a bird’s eye view of your organisation. 

Your CFO may handle business strategy, budget modelling, and reports for stakeholders. A Chief Financial Officer also takes on the tasks of advising executive boards, managing cash flow, and forecasting the revenue of the product pipeline. In other words, a CFO is responsible for big picture financial decisions and projections. The best CFOs can spot a financial windfall possibility and also catch an upcoming revenue fall before it happens. 

How CFO services can help your business

CFO services can do what a day-to-day bookkeeper or accountant may not have the time or experience to do — tackle the overall financial health of your organisation and help strategise for the future. 

It’s also worth noting that company directors in Australia, including CFOs, have a duty of care and diligence under both general law and the Corporations Act 2001. You want to have an experienced leader in this role. 

Here are some ways adding a virtual CFO service to your business can help push your business to the next level. 

  • Expert reporting. Your directors may be called upon to file reports to the Australian Securities and Investments Commission (ASIC). Having a CFO on hand makes this process easier. The CFO will have enough knowledge of your company’s finances to declare that your company can pay its debts, has a culture of accurate financial reporting, and is in compliance with any government standards. 
  • Internal management. Other financial team members, including accountants, often fall under the leadership of the CFO. Having this position filled means other executive members can free up their time instead of tracking the moves of the finance department. 
  • Strategic advice. An experienced CFO knows how to grow the financial health of a company. You have an in-house financial advisor at all times. Your CFO will make sense of financial information and use your books to define business goals, opportunities, growth rate. 
  • Capital management. When you need to raise capital, just having a CFO helps you look more stable. Even a team of outsourced CFO services is an advantage. Your CFO will present a compelling financial picture to lure in potential investors and lenders. 

Advantages of outsourcing a CFO

When you want to scale your business fast, virtual CFO services are a cost-effective solution. You won’t have to budget for a competitive full-time CFO salary (or benefits) to access the expert strategy a CFO can offer. 

Visory services are an extension of your business. Bringing a virtual CFO into the squad isn’t like having a vendor — your finance expert will understand your industry inside and out and become a trusted team member. Outsourcing your CFO to a virtual service also means you save the time and expense of interviewing candidates. As a result, you can drive your business and remain competitive without taking a month or more to hire the perfect full-time CFO. 

Financial growth is challenging in the best of conditions. A CFO can help you resolve any bumps in the road and offer their experience. An outsourced CFO becomes a member of your financial team without the cost of a full-time salary, which can be music to the ears of small-to-medium size businesses. For those businesses which are on the road to becoming an enterprise-level company, a virtual CFO is often a secret to success. Contact Visory today to learn more about how a virtual team can help businesses of almost any size reach the next level. 

Life After COVID: How a Bookkeeper Can Help Your Business Recover

COVID-19 may not be entirely behind us, but the protections businesses enjoyed at the start of the pandemic are mostly gone or coming to an end. For example, JobKeeper is no longer in operation in Australia, and creditors are allowed to pressure companies who owe as little as $10,000. In New Zealand, some wage subsidy programmes are still available as of March 2021, but only if your city activates an Alert Level 3 for seven days.  In short, your organisation needs a plan for the future of your finances and business recovery. 

An experienced bookkeeper can help you get your paperwork in order which can help your accountant advise you on how to create a path toward profit. Instead of going it alone, consider how you can build a team of financial experts who can take you from the brink of insolvency to thriving once again. 

What roles does a finance team play in your business?

An outsourced finance team does a lot more than process your payroll and track your transactions. With the right people, an outsourced finance team can become a vital part of your internal team as well. 

Some of the most important tasks a fiance team for business include:

  • Financial reporting and forecasting. Accurate reporting can help your accountant forecast profits and losses. Forecasting will help you remain profitable after COVID and scale at a realistic rate and. 
  • Track down accounts receivable. Your outsourced financial team can chase invoices that went unpaid during the pandemic, which will help you balance your books on the other side of COVID.
  • Identify cash flow problems. Are you low on funds at the end of the month? Your outsourced financial experts can send you reporting and insights so you can create strategies for keeping more cash on hand.
  • Prepare financial statements for your accountant. Navigating PAYG instalments correctly reduces the risk of incurring government fines and penalties, especially as COVID era protections are lifted.  

How can an outsourced internal finance team help business recovery after COVID-19?

Businesses with an exit strategy in place are more likely to survive any crisis in one piece. In terms of COVID-19, this means being ready when payroll assistance and other forbearances are done for good. And even then, you may still need some help. Can you maintain a solid financial position moving forward without a trusted financial team? Unlikely.

In a post-COVID world, Visory’s financial experts can meet with your accountant and senior staff to help you establish a business recovery timeline—with contingencies included (what happens if there are new travel restrictions down the line?). Our bookkeeping and financial experts can help create a new budget for the next few years; your services/prices/expenses may have changed during COVID. With data and insights, you can determine when you’re ready to bring employees back full-time and evaluate the current salary structure for any necessary changes.  Having in-depth and accurate reporting and insights is essential for your accountant to make the right decisions. Visory can supply your business with an expert back office team that can give your business the reporting it needs to create strategies for recovery and help your team interpret the data. 

Finally, you’ll also need accurate financial records if you wish to ask for a bank loan. Your business recovery will require an expert financial team that is well versed in what businesses are being offered at each stage of post-COVID aid. Your accountant will maintain your general ledger and be on standby to request government aid if it becomes available. They can file applications, complete the necessary reports, and handle any appropriated funds. Visory can ensure that your accountant and back-office staff have the reporting and insights required to apply for a loan.

Why you should outsource your back office

You may not be able to in-house back office support on the heels of COVID. Many businesses have had to cut staff or roll back hours. When you outsource your bookkeeping and greater reporting needs, you can access a whole team of financial experts while saving money. 

An outside bookkeeping service like Visory can also give you an unbiased view of your business. You have been through an emotional few years, and an outsider can be objective about the necessary steps to recover fully. These decisions may include raising your prices, eliminating some services, or making other difficult changes that would be hard to admit are necessary on your own. 

Visory has a clear pricing plan that makes it simple to budget in the future. We know that many businesses in Australia and New Zealand are facing insolvency. Our team includes people with years of back-office support in various industries who can scale your services up and down as necessary. Plus, our financial experts and services are at the ready when you require an additional bookkeeping service, payroll, or other help. 

Having an expert team on your side can make all the difference in times of uncertainty. Surviving COVID as a small business means accurate books and a realistic plan for the future. Visory can help you with business recovery and more, including ongoing payroll and bookkeeping services. 

Top 10 Benefits of Outsourcing Payroll

For an expanding organisation in Australia or New Zealand, growing payroll needs can cause headaches. Are you applying the right tax rate? Is your software able to scale? Are you compliant with government regulations? One misstep, and soon you’ll be buried in some serious paperwork or worse—you might miss a pay period. Fortunately, there are financial experts who can help you handle payroll. From paying employees to setting up new employee accounts and remaining government compliant, a trusted payroll partner can shoulder the burden of your payroll process, so you don’t have to.  The benefits of outsourcing payroll can’t be understated. 

Here are 10 reasons to call in reinforcements for your payroll systems. 

Benefits of outsourcing payroll

Time savings

When was the last time you assessed how long it takes to process your monthly payroll? Even when the system is streamlined, your staff has to keep on top of paid time off, sick days, paid bonuses, and tax changes. An outsourced team of managed payroll experts frees up your back office to worry about other things. 

Government compliance

Payroll taxes and thresholds vary based on state or territory, as do the required deductions in New Zealand. For instance, do you know the appropriate non-notified tax rate in New Zealand for an employee that does not provide a completed IR330? Spoiler: It’s 45%, but you could run into compliance issues if you miscalculate it. You’ll save money in the long run when you remain in compliance with tax regulations. 

Money savings

You won’t only save money on avoided compliance penalties when you outsource your payroll needs. The benefits of outsourcing payroll also include saving on overhead costs. When you don’t have to shoulder the on-costs of a full-time payroll expert in-house, you can use that cash for product development and more. 

Security

Your payroll system includes the sensitive data of your staff. Should the system ever be breached, identifying information could be stolen. There is frankly tonnes of risk in handling payroll as a side project as your business grows. A trusted payroll company will have the digital infrastructure needed to keep your information safe and sound. 

Team of experts

The skills required to be a payroll officer vary. It helps for a person to have a degree in finance, but at the very least, they must be comfortable with both maths and communication. A payroll officer not only processes all payroll transactions but also updates payroll systems, calculates employee income, handles Jobseeker payments, generates financial reporting, clears discrepancies, and more. Having a whole team on your side means you don’t have to search far and wide for the perfect employee. 

No risk of losing staff

Speaking of finding an ace employee—what happens if you find one, train them, and then they leave? You’re back at square one. Outsourcing with Visory means you always have payroll support without fear of losing your payroll pro unexpectedly. 

Save on software and infrastructure cost

Accounting and payroll software can be expensive. Plus, your software can’t do everything for you. You’ll still need to ensure you’re using the proper tax tables and the software is applying the most modern government compliance standards. One of the benefits of outsourcing payroll is that your new team will always invest in the most up-to-date payroll software so you don’t have to. 

Eliminate paperwork

Outsourcing payroll also allows you to eliminate heaps of paperwork. Not only is this more convenient and efficient, but it can help reduce the chances of fraud. Outsourcing your payroll means you aren’t responsible for the paper trail of payroll; someone else saves all the documents for you. 

Simplify HR

Right now, you may have HR handling payroll along with hiring, firing, and planning business events. When you take payroll off their plate, you allow HR to specialise in what they do best — managing your employees’ needs and interviewing candidates. Visory will act as an extension of your HR department, fielding the questions your HR team has historically been inundated with. 

Peace of mind

Outsourcing payroll adds up to one conclusion: More peace of mind. You have one less thing to worry about and never have to fear leaving your staff in the lurch because you failed to process their pay on time. You can focus on growing your business, not running payroll.

Visory is here to meet your payroll outsourcing needs. Between the added security and compliance consistency, you’ll be glad you paired with payroll pros. Sign up today to learn what we can do for your organisation. 

 

Do I Need a Bookkeeper, an Accountant, or Both?

As a small business grows into a medium- or large-sized operation, it may no longer make sense for the founder to balance the books. Imagine a time-starved back office employee trying to itemise and code transactions. With what time? While office managers can fill some of the gaps, a bookkeeper or an accountant must eventually be welcomed into the fold. 

The terms bookkeeper and accountant are often used interchangeably, but in fact, they are not one and the same. The educational requirements, daily schedule, and specific skills of these two roles can overlap but are not synonymous. Let’s look at why accountants and bookkeepers can each help your business–and how to tell if you need a bookkeeper or an accountant

What does a bookkeeper do?

Bookkeepers are responsible for the day-to-day record keeping of your business’s money. The duties of a bookkeeper can include documenting financial transactions, posting credits and debits to a balance sheet, processing payroll, generating invoices, and merging accounts. The bookkeeper may also stay on top of the vital records required by the Australian Tax Office (ATO) or New Zealand’s Inland Revenue Department (IRD). 

In short, bookkeepers create the financial records that an accountant can later analyse and use to create more complex reports or file full tax returns. A bookkeeper is the first stage in the accounting process. They benefit your business by tackling daily financial records that must be accurate in order to create useful reports later. 

Who is a bookkeeper? Some bookkeepers are trained by their employers, but other bookkeepers learn their skills by getting a Certificate in Accounting and Bookkeeping and registering to become a BAS Agent. You may want to hire a bookkeeper if you have a tax accountant but need someone to handle your office’s in-house financial records at medium-sized companies. 

What do accountants do?

Not only will an accountant use the records that a bookkeeper created, but they will also crunch the numbers on their own reports. Their work tends to be more senior level and they may even advise the company regarding high-level company decisions. As a result, the salary of an accountant can be nearly double that of a bookkeeper. 

The typical role of an accountant encompasses things like prepping for taxes, preparing financial statements, plotting the growth of your business, verifying that the company’s finances are government compliant, examining revenue and recommending budgets, resolving accounting discrepancies, and setting up accounting processes. When you’re deciding between a bookkeeper or an accountant, you know you’re ready for a full-time accountant if you have the need for financial analysis and advice regarding the impact of financial decisions. 

An accountant may have a Diploma of Accounting or another advanced degree. Many businesses can get by with one in-house accountant, but you may need the expertise of a whole team as you grow and scale. 

When you need both an accountant and a bookkeeper

OK, but when might you need both a bookkeeper and an accountant? There are some benefits to having both roles working side by side. The separation of duties may help you remain compliant with government reporting and provide a built-in cross-checking system. The books recorded by the bookkeeper will be double-checked by the accountant. This can eliminate some mistakes. 

A complicated tax structure may also call for both roles. You want one professional to keep an accurate general ledger and track daily expenditures (the bookkeeper) and another to analyse the books, look for available tax credits, and prepare tax reports (the accountant). If your business is growing and in search of investors, having both a bookkeeper and an accountant also strengthens the financial picture of your growing organisation. 

Do you need a bookkeeper or an accountant, or both? Bookkeeping services keep your day-to-day financial tasks done on time. You’ll never miss payroll again. Meanwhile, an accountant offers more robust analysis and internal financing advice. Larger companies probably need both. Bookkeeping services keep you running smoothly in the present day and accountants make sure the future remains stable. 

If you need a team of financial experts to keep your company’s ship upright, contact Visory. Our virtual teams are tailored to the expertise you need and we can tackle bookkeeping and accounting projects large and small. We’ll become such a part of your team you’ll want to invite us to the holiday party (after we tell you if that can be expensed).

5 Ways Outsourcing Bookkeeping Can Help Grow Your Business

Accountants are an essential part of any growing business. Not only can a good accountant or bookkeeper keep your balance sheets balanced, but they also help you scale up by taking a myriad of essential tasks off your plate. These tasks include: helping you create your budget and accounting policies, preparing financial statements for stakeholders and the government, keeping track of operating costs, maintaining accounting systems, and preparing tax returns. 

But how do you build a solid accounting team? Even for a medium to large business, the benefits of outsourcing your bookkeeping can’t be ignored. An outsourced finance team can handle everything from your itemised general ledger to your payroll. You get the help of an accounting pro without needing to hire a full-time staff member. Outsourcing often frees up money and time for innovation and product/services expansion, which helps you scale seamlessly. 

Here are five benefits of outsourcing your bookkeeping we think you should explore as your business grows. 

Outsourcing bookkeeping saves money that can be reinvested

As we explained in our guide to outsource bookkeeping, the average salary for a bookkeeper in Australia is almost $70,000 per year and in New Zealand around $68,000 (NZD) per year. Meanwhile, you might be able to get outsourced bookkeeping for as little as $1,000 per month. Imagine how much money you save if you have access to an entire outsourced team instead of hiring in-house bookkeeping experts. That’s a lot of money left for other essential tasks. 

With the money you save from outsourced accounting work, you can reinvest in your company’s other departments. This could mean increased product development, a bigger marketing budget, and other key expenses you need to grow your business. Not only can outsourcing save you money now, but it can set you up for future success. 

Outsourcing bookkeeping is scalable

The right outsourced bookkeeping team can scale with you. What does that mean? As your business gets bigger, your outsourced team can grow with you. A company like Visory can tweak your financial team as needed. That means adding new members to your team with a specific speciality, creating redundancies when necessary, and allowing you to grow your business without pausing to hire a new full-time employee. 

In addition to adding new virtual team members to your business as you grow, the benefits of outsourcing your bookkeeping include assigning additional functions and responsibilities. Some of the things an outsourced team can do for you as you grow larger include:

  • Scaling up back office processes such as payroll and accounts payable that drive your business forward
  • Take on additional financial reports, such as quarterly reports or trial balance briefs
  • Analysing your company’s financial strengths and weaknesses so you can make informed decisions that improve your performance
  • Make accurate forecasts about the future of your business

Outsourced bookkeeping can keep you compliant

Outsourced finance professionals can also help keep you compliant. You don’t have to worry about chaos in your internal financing when your internal financial experts are on the case. Whether you’re reporting to the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), New Zealand Companies Office, or New Zealand Inland Revenue — you won’t be caught breaking the rules with an expert who promotes good practices. Your remote bookkeeper can also stay on top of your Business Activity Statement (BAS) schedule. Staying up to date on day-to-day data entry and regular book balancing is a lot easier with a robust finance team. 

Outsourced bookkeeping and accounting can help you obtain additional funding

Want to obtain additional funding? You better hope your books are in order! Or, hire an expert team of financial professionals to double-check every figure. As you scale up, potential stakeholders will look for specific financial records. These may include:

  • Historical data about your company’s growth, including income statements and balance sheets
  • Projected financial figures that include projected cash flow and capital expenditure budgets

Outsourcing can relieve the burden on your management team

When you outsource your financial reporting, you ease the entire management team’s overall burden. No one will have to drop other work to process payroll or vet potential tax accountants. The company’s leadership can remain focused on your business’s growth and innovation. Outsourcing bookkeeping allows you to retain accurate internal financial data, so informed business decisions can still be made, but management is free from the mundane day-to-day reporting that may slow down growth in the long run.

The benefits of outsourcing your bookkeeping include freeing up time and money, easing the burden on executives, and scaling up faster. If you need a team on your side, consider Visory. We can pair you with a bookkeeping team that is specialised in your field and ready to get to work today. 

Understanding a Balance Sheet

Think you have a grasp on the health of your business? If your balance sheet is a mess, you might be lying to yourself. A balance sheet represents your company’s assets, liabilities, and stakeholder equity (the money that’s been invested) at a given point. In other words, it tells you a lot more than the pile of Post-Its and invoices you keep on the corner of your desk. 

Balance sheets are often prepared quarterly, but you can generate one any time you need to see how your company is performing. Of course, understanding a balance sheet is as important as creating one. If the columns look like Greek, you can’t make educated investments or have smart spending habits. A company like Visory can help you prepare and understand an accurate balance sheet on a regular basis to track the growth and financial challenges of your organization. What is a balance sheet?

Most balance sheets use the same standard equation. This formula balances what the company owns (its assets) against what it owes (its liabilities) plus what stakeholders have invested. 

Assets = Liabilities + Shareholders’ Equity 

However, as Harvard points out, there are a few other (less common) formulas that can help you take the pulse on your business’ health as well.  These equations are aimed at figuring out what the stakeholder’s investments are worth and what the current liabilities are, assuming no overhead. 

Owners’ Equity = Assets – Liabilities 

Liabilities = Assets – Owners’ Equity

A balance sheet will have a column for assets and a column for liabilities and investments that should — you guessed it — balance each other out. If you take out a loan for $10,000, your assets will increase by that amount because you now have $10,000 available to spend. However, your debts will also increase by $10,000 because you have to pay it back. Thus, the two columns are balanced. However, understanding a balance sheet also requires a more detailed understanding of what constitutes an asset and what is considered a liability. More on that right ahead. 

Man reviews a balance sheet on his laptop

Untitled by Photo by Austin Distel on Unsplash

How a balance sheet is structured

One of the things a balance sheet determines is your company’s debt ratio. Lenders and potential investors may specifically seek out this data to determine if your company is in the black or the red. They are sure to comb over your financial documents, which makes understanding your company’s balance sheet and profit and loss statement crucial. . 

Now, what is the proper way to structure a balance sheet? Understanding a balance sheet also means knowing how to organize it. If you leave off an essential line item, the entire document could become inaccurate. 

First, let’s discuss the assets. These include current assets and non-current (also called long-term) assets. These items will typically be written as individual line items on the left side of your balance sheet. 

  • Current assets
    • Cash and cash equivalents (including short-term CDs)
    • Accounts receivable
    • Inventory
    • Prepaid expenses
  • Non-current assets
    • Property and equipment
    • Intangible assets (patents, licenses, proprietary technology)
    • Long-term securities investments

On the right side of your balance sheet, you will write down your liabilities and equity stakes. These line items include anything your company owes to lenders,

  • Current liabilities
    • Accounts payable
    • Wages payable
    • Current bank debt
    • Long-term debt
    • Deferred revenue
  • Shareholder equity
    • Share capital
    • Retained earnings
    • Common stock
    • Preferred stock

Why are balance sheets important?

If you need a course on understanding balance sheets for beginners, you’re not alone. Even medium to enterprise companies who have grown swiftly may still need aid ironing out the best way to balance the books. Trust us, it’s worth the effort. A balance sheet makes a difference in day-to-day business (can you afford to process payroll on time?) and in your long-term growth (will you be approved for a new business loan?). 

A real professional that understands the specifics of book balancing and the ins and outs of accounting can make a huge difference in your business’s financial health. Accurate reports not only allow you to see red flags as they arise but prepare you to be ready to go when an investor shows interest. Someone who is already experienced in understanding balance sheets and income statement documents is a major game-changer. 

Need some help understanding a balance sheet? Get started with Visory today. Signing up is straightforward and gives you access to the experts you need to keep you out of the red.