New technology needs to stop changing everything.

New technology promises the world and often falls short. Many would unfortunately understand this truth. Attempting to implement new technology for a small business, let alone a large multi-entity group is no mean feat. It’s through simplifying, consolidating and standardising that you unlock performance indicators and enable growth.

Legacy software and different accounting systems can prevent many projects from even getting off the ground. With success rate expectations looking unenticing once a project has started. Boston Consulting Group estimates that close to 70% of digital transformation projects don’t meet desired outcomes.

So, is it the salesperson’s fault for over-promising?

Is it the software’s usability that leads to these failures?

Or is it group controllers and individual businesses that are to blame for poor implementation?

All can be the cause of a failed technology project; however, this is only one side of the coin.

The strategy of many new technologies is to create new environments, processes, and skill requirements. This doesn’t need to be the case, especially for established businesses.

Using a new technology that works within your existing structures and changes elements only where necessary, can greatly reduce the risk of implementation or adoption failure, whilst unlocking the performance and growth opportunities lying hidden within your group.

Simplify & Consolidate

Look for technology that simplifies and consolidates your current technology suite during implementation. Businesses often jump at new functionality and reporting without considering the often already overloaded technology stack imposed on staff or customers.

Harvard Business Review reports that on average, workers toggle between software up to 1,200 times per day. People have a limit to the range of tools and technology they can reasonably be expected to use. So, utilise technology that creates a simpler suite for reduced complexity.

Technology that creates a streamlined communication process or a single point for workflow and project updates will go a long way in understanding differing work occurring across your business whilst also helping reduce the technology strain customers and staff experience.


If left to their own devices, employees and franchise group members will create an ever-growing array of processes. Having the full view of your business or group, controllers need to utilise this vision in conjunction with technology to guide franchisees into a consistent ‘one best way’ approach.

It’s not enough to use a workflow platform that still requires high levels of customisation. Standardised and prescribed processes enabled through technology create opportunity for group wide performance monitoring and benchmarking. With the reporting tools enabled through standardisation, improvements will be jumping right out of your financial reports.

Standardisation can assist many areas within your groups structure, but none more so than the Chart of Accounts. Anyone who has spied the financial reports of individual franchisees will unfortunately know that each report will almost read as if it is a different language. Available technology can solve this without creating new systems and enforcing changes to account structures. This technology standardises this labyrinth of data with mapping logic to create standardised financial data that group operators can leverage for clear overview and insight of their performance.

When combined, these technology attributes unlock growth

A simplified technology suite and unified workflow management structure will allow you to identify pain points hindering your staff or members and reduce workload requirements.

Standardised processes and workflows will guide members to use the ‘one best way’, whilst also creating consistency within your groups data.

Incredibly powerful reporting tools are then able to use this simplified and standardised data to create live performance scorecards and groupwide benchmarks. The roadmap for performance and growth is already paved within the fabric of your group’s operations and data. It’s heightened performance monitoring of leading and lagging indicators which will surface growth opportunities.

What does a complimentary technology stack look like?

The golden question.

Working with many business structures and groups, we at Visory know firsthand that each situation is different. That being said, certain structures are better than others, and this is an example of one which exhibits all of the attributes mentioned above.

To capture and track financial data. Enabling automations and integrations with key software.

  1. KeyPay – To capture payroll information, provide award rate interpretations and again, integrate with key software.
  2. Visory – Provide standardised workflows and simplified communication to deliver complete bookkeeping and payroll support. Integrating with both Xero and KeyPay, so that business owners don’t have to access either software.
  3. Visory Insights – Combine simplified and standardised data from across your group to create customised live performance scorecards and benchmarking.

Three integrated software to manage an entire back office, and the need to only access one of these as a business operator. As a group, the benefits of such a unified and efficient software stack are astronomical, with the growth opportunities identified in clear reporting and benchmarks almost being secondary to the workflow efficiencies realised across your entire group.

Small Business Income Tax Offset Guide

Small businesses are always looking for ways to reduce their tax bills, whether it’s through tax offsets or deductions. But did you know that you may be eligible for a Small Business Income Tax Offset? The Australian government offers it to help qualified businesses with their taxes. 

If you are eligible, you’ll receive a rebate of up to $1,000. The Australian Taxation Office (ATO) calculates the offset based on the part of your business income subject to taxes. It’s important to note that there is a turnover threshold limit. 

This comprehensive guide will provide the answers to questions you may have about tax offsets, tax deductions, and more.

What Is a Tax Offset?

A tax offset is a discount on the amount of taxes you owe. The amount of taxes you pay gets reduced by the amount of your rebate. So, if you owe $1,000 in taxes and have a $200 offset, you only pay $800 in taxes.

It could reduce your payable income tax to zero. There are two types of offsets: refundable and non-refundable.

  • Refundable offsets: can be used to reduce the amount of tax you owe to zero, and if you have a balance of rebate left over, you will receive a refund for the amount.
  • Non-refundable offsets: can only be used to reduce the amount of tax you owe—they cannot give you a refund.

The amount of rebate you receive depends on individual circumstances. However, the ATO notes that most are non-refundable.

What Is a Small Business Income Tax Offset?

The Small Business Income Tax Offset is an offset available to unincorporated small businesses in Australia. The rebate is available for the business’s taxable income. The ATO caps it at $1,000 per annum.

The offset helps small businesses with their tax liability and encourages entrepreneurship and growth. To be eligible for the compensation, companies must have an annual turnover of less than $5 million.

The Small Business Income Tax Offset is one of several offsets that are available to small businesses in Australia. Other offsets include the Small Business Capital Gains Tax Concessions and the Small Business CGT Exemption.

Small Business Income Tax Offset vs. Tax Deduction

One way to reduce your tax bill is by taking advantage of tax offsets and deductions. What is the difference between a tax offset vs. a tax deduction?

A tax offset is a reduction in the amount you owe after taxes. If you owe $10,000 in taxes but have a $1,000 rebate, you will only owe $9,000 in taxes.

A tax deduction, on the other hand, reduces the amount of income before taxes. So, if you have $100,000 in taxable income but you can deduct $10,000 in business expenses (excluding personal costs), then only $90,000 of your payment will be taxed.

Business expenses may include: 

  • Employee salaries
  • Marketing expenses
  • Financing expenses 

Who Is Eligible for a Small Business Tax Offset?

The offset is strictly available to individuals who operate a small business as a sole proprietor or have a portion of the net small business revenue from a partnership or trust distribution. Foreign residents qualify if they meet the requirements—as well as foreign businesses of Australian residents.

From the 2021–22 income year forward, individuals must have an overall turnover of less than $5 million. If you meet these criteria, you may be eligible for a Small Business Income Tax Offset with a rate of up to 16% offset.

Eligibility requirements are: 

  • Less than $5 million annual turnover in the 2022–23 financial year 
  • A due lodgment date of no later than 31 October 2023 for the 2022–23 financial year 
  • Must be an individual obtaining a small business organisation income (unincorporated entity)

Who Is Not Eligible?

If you do not meet the above criteria, you will not be eligible for the Small Business Income Tax Offset. 

The following are not eligible:

  • Incorporated companies 
  • Corporate unit trusts, public trading trusts
  • Individuals with an annual turnover of more than $5 million 
  • Any individual with a business controlled by another entity or person
  • Businesses that are part of a group of entities with a combined turnover of more than $5 million

How Is the Tax Offset Calculated?

The ATO calculates the offsets based on the Small Business Income Tax Offset rates and thresholds that apply for the relevant financial year. As mentioned, the ATO calculates the rebate using a 16% rate of offset. The ATO also uses a business’s tax return data to calculate the offset amount.

The balance then gets sent to you as a line item on the notice of assessment. But if you are math savvy, you can estimate your rebate.


Oliver is a sole proprietor. He has a $50,000 taxable income and a $12,500 tax burden for the 2022–2023 income year. His total assessable income from his firm is $25,000.

Oliver must first determine what proportion of his taxable income is attributable to his firm (taxable income divided by total net small business income):

  • $25,000 / $50,000 = .05 (50%)

Oliver’s business accounts for half of his taxable income. Oliver then applies this to calculate how much of his entire net revenue is attributable to his tax liability:

  • $12,500 x 0.5 = $6,250

He calculates his rebate from the small business he owns using the small business offset rate (16%): 

  • $6,250 x 0.16 = $1000

Oliver’s final offset is the maximum cap limit of $1000. It’s important to note that the offset is non-refundable, so any excess it generates above a person’s tax burden is forfeited. If the final rebate had been $3,000, it would decrease to the limit of $1,000. You can use the offset calculator to determine what to enter on your return. 

What Is a Tax Offset Calculator?

The ATO Small Business Income Tax Offset calculator helps you figure out the amount you must provide in the field labelled “Net small business income” on your return. However, this calculator will not determine your offset amount—as specified above. The ATO is in charge of this.

How Do You Claim Your Small Business Tax Offset?

Your business can claim the Small Business Tax Income Offset if you meet all eligibility requirements by filing a tax return for the relevant year. You don’t need to submit a form. 

Final Take

Do you still have questions about what is a tax offset? If you want to know more about tax offsets or any other aspect of your business’s taxes, it’s best to speak to an accountant or tax professional. They will be able to give you tailored advice that considers your circumstances.

Visory’s bookkeeping service can help you prepare for tax time and take advantage of small business income tax offsets and deductions. Our marketplace of finance experts can take accounts payable, accounts receivable, payroll, reporting, and more off your hands. You can book a meeting with the Visory team to learn more about our services here.

How to Choose the Right Software for Your Business

In this day and age, there is software for everything. The only software that doesn’t exist, is a software to choose software. *Our legal team will be in touch if you steal this idea.

When running a business, you will be pressured into improving efficiencies and creating automated processes, which software can often provide. However, just as a good software selection can assist your business, poorly chosen software can have negative effects which will waste time and money. Here are a few key pointers we suggest addressing before you make your next software decision.

1. Plan for the Best Usage, Expect the Worst

Don’t be sold nirvana. You will rarely find a business that utilises a software to its maximum potential, and if they do, they’ll still have a laundry list of things they want to fix.

When looking at a new technology for your business, consider what would happen if you only achieved the lowest level of implementation. Will the software provide any value at this stage?

Prime example, the fabled CRM.

If you only use the CRM as a digital contact book, would it still be worthwhile?

This isn’t a tip to reject any software that doesn’t overcome this threshold, rather it’s an early indication on the effort and dedication required to make the chosen software have a positive impact on your business.

2. Take the Time to Quantify Expected Improvements

Many people would have come across an administrative ‘weapon’ throughout their career. Someone who completes standardised tasks, so quickly, so efficiently, you cannot help but watch in awe.

Now imagine you are replacing their tools and processes with a new software that still requires manual input.

Has the time to complete their work been reduced?

Have the reports generated from their work been automated?

What are the immediate benefits of this new software?

Once you dig deep and estimate immediate, as well as future impacts of a software, you might be shocked to find there aren’t any positive ones in the short term. Highlighting this is crucial, not only for planning and implementation, but also change management in your team. Promising a new software that improves workflow and efficiencies, only to deliver a clunky, equally manual software is a bitter pill to swallow and can stunt staff adoption. Extra tip: If your administrative tasks are truly standardised, consider a tool such as UiPath which can perform the same tasks as your administrative ‘weapon’.

3. Pricing Comparisons

Software pricing norms have evolved over time. Fixed terms and unlimited users have made way for flexible engagements that charge by the ‘seat’. Seats can be deceptive.

Our key tip here is short and simple, forecast more seats than you need when comparing prices.

There will almost always be ad hoc requests from senior leadership, new starters, or unaccounted staff to have a seat. So, instead of watching payments balloon, account for additional seats before any engagement and ensure it is still within your price range.

4. Plan for Larger Teams

When deciding on new software, you can often fall into the trap of only finding a software fit for your current team. Avoid this and make sure the software can scale to any size.

Ensuring the chosen technology has collaboration capabilities, access hierarchies and clear audit trails will help your business increase the number of users and teams without costly restructuring required later.

5. Assign Responsibility

Our final and arguably most crucial point is focused on ownership, responsibility, and accountability. When a decision is made to select a software and implement it within your business, you need someone to take ownership for this decision. Notice we say individual and not a team. As the modern-day herald of business Elon Musk discovered, when a business decision is made, individuals must be held to account for the decision, future roadmaps, and the related business activity. If left to a team, responsibility can be handballed, final decisions are often left ambiguous, and points of contact are left scattered.

Choosing the right software for your business can have extraordinary results and having experienced and implemented a range of back-office software to suit many needs, Visory’s team of experts is able to advise software solutions suitable for your business. Minimising the risk of choosing the wrong software, we guide you through selection, implementation, and continual improvements to make your business run seamlessly with as little effort as possible.

Performance Reporting Mistakes to Avoid as a Growing Business

As the old saying goes – with new levels come new devils. Just as you’re getting your head wrapped around running your new business, it starts growing!

Great, congratulations! You’re hiring employees and building teams and with that comes essential reporting to track your business’s development. Top line figures are easy to capture, but with this wave of new and different information there are many hazards to avoid, and strategies needed for you to gain the most insight.

Time Periods & Performance Metrics

Not all months are created equal. A known and irrefutable fact. However, you’ll often see monthly reports that say sales increased 2% or that the number of customers decreased 3%, without explanation. Dig a little deeper before jumping to conclusions and running the risk of making business decisions without an informed view.

Turn your attention to performance-related measures and ratios. Sales dropped over the month? Check your daily sale averages. Number of customers dropped? Check to see your appointment vacancies compared to last month.

In short, don’t simply look at what has occurred, but use relevant performance measures and ratios to confirm why or how this might have resulted. If you still find a variance in desired performance, then you are at least left with a more detailed insight into where your business needs to improve.

Standardise or Die

Yes, the standardisation of calculations is that extreme.

This issue can be straightforward to resolve. But as your business grows, things can become lost in translation easily, so it needs to be revisited often. With reporting streams and responsibilities being shared, place effort into not only agreeing on KPIs and business wide reports, but also ensure that involved parties understand why you are working towards those goals AND how they are calculated.

If you are looking at CAC (Customer Acquisition Cost), make sure you agree on the expenses included in the calculation.

When looking at sales for the month, decide if existing client upsell is included in the total.

If you are looking at client churn, clarify if this includes involuntary churn or not.

Simple decisions, clear lines of communication, and constant reflection will help to ensure the report you read is interpreted the same way throughout your business.

A|B Testing

Not every business will be able to A|B test. Such testing lends itself to mature tracking and data environments, which not all industries or business models have access to. However, those that do utilise this capability need to be wary of reading too deeply into their results and drawing conclusions to fit their hypothesis rather than challenge it.

Say you have a website to convert customers, and you test a landing page variation. You split traffic evenly and track how many customers add an item to cart or leave their details for your sales team. After a few weeks, you check the results to find that your new page variation outperformed your original page. Eureka, your business has improved, sales will go through the roof, and you’ll guarantee retirement by 45.


All this test proved is that you had more people adding an item to cart or leaving you their contact details. Did those carts lead to purchases? Were those carts above your average cart size? What was the average mark-up on items in those carts? Did the contact details you captured result in a meeting? Did any result in a sale?

These are tough questions to answer, and not always necessary to conclude testing. Although if you aren’t reporting the full journey of your user, make sure you don’t overreach with your interpretations. Every unanswered question leaves an assumption, and you should make note of this when reporting results or making strategic decisions. For assistance in comparing your test results, use this A|B test calculator to ensure you are following best practice.

As your business grows you will encounter these and many more issues for the first time, which can be challenging to tackle along with the day-to-day running of your business. Whether it is validating the information you are seeing or ensuring your performance measures are accurately calculated, it takes time, experience, and investment to get right. Visory provides real-time customised reporting to suit your specific needs, and a complete back-office team to validate all your information, giving you the confidence to continue growing your business, your way

Consistency Is the Key for Franchise Network Success

To quote a figurehead of strong business behaviours, Khloe Kardashian recently stated, “It’s all about consistency.” I couldn’t agree more. Looking across the franchise landscape, consistency is a theme that runs through many of the largest and highest performing networks. Strong branding controls, templated processes, and precise methods of execution allow franchise groups to control their delivery of goods and services. Yet, this control can easily be lost beyond that.

Seldom do franchisees join a network with a passion for back-office processes.

Even more seldom does a new franchisee, left to their own devices, replicate the structure of other network members.

But a successful franchise network does not let this situation play out across their business. Doing so can result in harmful flow-on effects such as inefficient processes and inconsistent data, leaving both the franchisee and franchisor not only exhausted but exposed to huge business risks.

Using an outsourced bookkeeping service like Visory is one way to enable franchise groups to roll out consistent back-office structures and processes that leave all parties involved with a much stronger foothold for continued growth.

The Right Tools for the Job

If individual franchisees are left to source and implement their own back-office systems, they are not always able to make decisions from a position of experience or expertise. This is not only time-consuming but has the potential to be enormously costly to the franchise group if the wrong decision is made.

Providing guidance and preferred providers for your network can streamline this process saving each new site or group member the lengthy process of researching, comparing, and negotiating deals for their chosen software.

Overlay the potential time saved from supplier negotiations at a group level, the best practice processes enabled by the right technology, and an on-demand support system to implement all required technology swiftly for new members, and you start to see the benefits balloon for your network.

As group controllers, you aren’t left with the short straw for your efforts either. Having preferred suppliers across your group gives you access to a consistent technology suite, which means you can offer ongoing support to your network whilst also reaping the rewards of standardised data feeds and integrations. This opens the door to heightened management reporting, access to groupwide data for decisions, and benchmarking across your network.

Team Blueprints for Success

Delivery of goods or services within your network will require human capital in some capacity. Hiring, training, management, payroll, and ongoing performance monitoring are all time-consuming tasks.

Many larger franchise groups have addressed such dealings by providing groupwide support or resources at varying levels with varying success.

Without a structured and systemic approach, new franchise members will either take on the responsibility of managing their back-office personally, manage it internally or look externally for assistance. But you can predict these three options each come with its own drawbacks and impact.

  • 1. Personally managed: The owner’s time is sunk into completing back-office work, lack of scale due to workload constraints, and absence of oversight or quality controls.
  • 2. Internally managed: Increased human resource requirements and investment, siloed capabilities, key person risk.
  • 3. Externally managed: Franchise data security, additional relationships outside of group controller’s knowledge.

Many of these impacts can be mitigated with preferred back-office support options. Owners are released from completing back-office tasks, human capital requirements are managed and scaled efficiently, and work deliverables are already scoped and agreed to for new members or sites.

At Visory, our scalable back-office engagements are developed around this concept. Delivering best practice back-office support for entire networks, enabled through a digital platform for improved efficiencies and group oversight.

Accounts Aren’t to Be Overlooked

The structure of your financial accounts is often overlooked by franchise groups, but it is one of the most impactful areas for getting consistency right.

A good example is a Chart of Accounts (CoA). Advising a consistent CoA structure enables Group Controllers to be able to guide individual sites on leading indicators observed through consistent reporting. This unlocks and enhances benchmarking capabilities and allows back-office management to be standardised across the group for efficiency and reduced costs.

If we have not mentioned it enough, consistency is key – importantly, throughout your back-office processes. Although it may feel overwhelming or uninteresting, without a structure in place it only becomes more inefficient and unmanageable. We have a tonne of experience at Visory providing scalable resources to manage your franchise growth and provide you the knowledge, tools, and support to create the consistent back-office processes you need so you can focus on the delivery of your goods and services.

How To Know If Your Business is Financially Healthy

Financial health is the heart of every business. It plays a vital role in determining a business’s efficiency and performance. Are you about to establish a new venture? Have you been in the industry for a long time? Whatever the answer is, it is crucial to understand your business’s financial health to determine its continued journey.

Knowing if your business is financially healthy will help safeguard major issues from arising and causing irreparable damage. Bookkeeping can help you know if your business is flat-lining or thriving because it details and updates your accounts and financial information.

Paying your workers monthly salaries is not the only determinant of a successful business. Do you have a steady cash flow? Are you saving any funds? Before we talk about how you can identify if your business is financially healthy, let’s see what a financially healthy business means.

What Is a Financially Healthy Business?

For a business to be financially healthy, it should control and manage its cash flow, profitability, operating efficiency and solvency within acceptable ranges. When you have deep knowledge about financial planning and management practices, your business has a great chance to be financially healthy.

How to Know If Your Business Is Financially Healthy

Sometimes, you get so busy with everyday tasks like making sales and managing customers that you forget to look at the big picture. Everyone wants to gain from their business. One way to do so is to check if the business is financially healthy. Here are tips for knowing the financial health of your company.

Know Your Numbers

Your books should contain information about your revenue, payroll, assets, equity, liabilities, overhead, cost of goods, expenses, and more. Every line item is essential, and you need to know them.

Knowing your numbers is the key to laying a solid foundation for a financially healthy business. 

Track Key Financial Ratios

You can use the numbers in your books to gain helpful information about the state of your business health. However, there are also many financial ratios you can use to assess your business health.

Liquidity Ratios

Liquidity ratios check the ability of a business to pay its bills when needed. It indicates the ease for businesses to turn their assets into cash. The current and quick ratios are the two common examples of liquidity ratios.

The current ratio compares the total current assets of a company to its total current liabilities. It shows whether a company has enough cash flow to meet its due debts with a safety margin.

To calculate the quick ratio, subtract your stock on hand from your current assets and divide the answer by your current liabilities. The quick ratio determines a business’s ability to meet immediate obligations using its most real liquid assets (quick assets).

Solvency Ratios

Solvency ratios show how your company can repay its debt obligations through sources other than cash flow. The leverage ratio and debt-to-asset ratio helps determine the solvency ratio.

The leverage ratio compares the total liabilities of a business to its equity. A high ratio often makes it difficult for a company to continue borrowing.

Debt to assets is a ratio of the total liabilities to total assets. It indicates the percentage of assets that creditors finance. In many cases, this ratio should not be more than 1.

Profitability Ratios

Profitability ratios not only evaluate the financial health of your business but also compares your business to others within the same industry. Common profitability ratios include gross margin ratio and net margin.

The gross margin ratio compares a business’s gross profit to its total sales. It evaluates the profit a business makes after paying the cost of goods sold.

Net margin is a ratio of a company’s net profit to its total sales. It indicates the percentage of sales revenue left by the company after all expenses have been paid, excluding income taxes.

Management Ratios

Management ratios track how well you are managing your working capital. How fast are you in replacing stock? How often do you pay your suppliers? How often do you collect debts outstanding from customers? Management ratios help to answer these questions.

You can compare your management ratios to other businesses within your industry to know how you can improve your business performance. You can use the ATO’s Business performance check tool to check where your company stands among competitors in the same industry.

Balance Sheet Ratios

Common balance sheet ratios include return on investment and return on assets. These ratios will show you how efficient and effective your investment is in the business.

Return on assets shows how well businesses generate profits from the assets applied in the business. The ratio only has meaning when compared to other companies’ ratios in similar industries.

Return on investment (ROI) helps you determine the profitability of your investment. It shows how a business uses its total assets to generate sales.

Stay On Top of Your Billing and Obligations

Create a process for invoicing your customers. Your clients won’t send payments early if you don’t invoice them on time. Be consistent with your billing to quickly receive payments and meet your financial obligations. A weak link can jeopardise the overall chain, and you could pay fees if you make late payments.

Always pay your bills, be it mortgage or rent payments, credit cards, tax payments, payroll, utilities, loan repayment, and vendor bills. Don’t forget that payroll is not just a financial obligation, as many laws govern it too. Pay your employees on time because their lives depend on it. Once you make any payment, record it in your books.

Set Aside Funds for Emergencies

People cannot predict global crises, but they can prepare for them. For instance, no one thought Covid-19 would affect businesses the way it did. The pandemic sent workers home and destroyed the supply chain for businesses that remained open. Issues in the supply chain often increase business costs, and you can cover these expenses with emergency help.

Collecting loans from banks, family members, or friends can take time. You can begin by building at least three months to one year’s expenses. With this, you’ll have funds at hand to handle any emergency that comes. You can use the funds to hire employees or invest in business opportunities. But ensure you use the money only when necessary.

Keep Personal, and Business Expenses Separate

Entrepreneurs often fail to separate their personal and business funds. Remember that knowing your numbers is one of the ways to determine a financially healthy business. But if you mix up your personal and business money, it becomes difficult to monitor.

Keeping a clean record allows you to see your profits and losses without interfering with personal expenses and income. You should set up a business bank account and open a business credit card. Doing this helps you get clean records and shows you where your funds are coming from and where they are going.

A financially healthy business clearly shows where you should invest and where to cut costs based on your immediate financial status. It helps business owners determine various strategies that will help propel their businesses.

During your business’s infancy, try to make good financial decisions right away. When you make positive financial decisions early, you’ll reap the rewards of your efforts fast. Your financial reports are what will guide you into making the right decisions.

Do you have issues getting a clean record and need help in bookkeeping, payroll, or financial reports? Get Started with Visory today.

15 Key Small Business Financial Ratios to Track

How is your business performing? Your answer should be based on rock-solid data and figures. We get it. Crunching the numbers and using financial ratios isn’t the exciting part of your business. Yet it’s necessary to ensure your business is financially healthy. You don’t want to grow in darkness and shoot aimlessly if you desire to grow and expand.

Financial ratios commonly fall into four categories: Profitability, Liquidity, Debt, and Operational Efficiency. Let’s dive deeper into the common ratios in these groups. These financial ratios can give you vital indicators about the health of your business.

Profitability Ratios

These ratios show your company’s ability to bring in profit:

1. Gross Profit Margin

Gross profit margin determines the profit you’re left with after paying the cost of goods (and not other expenses). The ratio indicates if your average markup on your items is sufficient. You want to remain with enough money to deal with expenses and still make a profit.

Gross profit margin = (Sales- Cost of Goods Sold) ÷ Sales = Gross Profits ÷ Sales

2. Net Profit Margin

The net profit margin is the percentage of sales remaining after you’ve paid all expenses, taxes, and the cost of goods or services. It’s among the KPIs that indicate whether or not your business is on the right path to success.

Net Profit Margin = Net Profits After Taxes ÷ Sales

3. Operating Profit Margin

Operating profit margins determine how efficiently you manage and control costs in your company. The higher the ratio, the better the cost controls.

Operating Profit Margin = (Gross Profit – Operating Expenses) ÷ Sales x 100

4. Return on Equity

Return on Equity determines the rate of return investors receive from an investment after taxes.

Return on Equity = Net Profit ÷ Shareholder’s Equity

Debt Ratios

These ratios indicate how your firm uses debt to ensure operations are running effectively.

1. Debt to Asset Ratio

The debt to asset ratio is the percentage of your total assets funded by your creditors. That means you could be in trouble if the ratio is high. 

Debt Ratio= Total Liabilities ÷ Total Assets

2. Debt to Equity Ratio

The debt to equity ratio indicates your business’ ability to settle loans. It’s the percentage of your liabilities covered by your shareholder’s Equity.

Debt to Equity Ratio = Total Liabilities ÷ Shareholder’s Equity

3. Times Interest Earned Ratio

The times interest earned ratio determines your business’s ability to settle contractual interest payments. An attractive ratio shows your business’ ability to pay the interest.

Times Interest Earned= Earnings Before Interest & Taxes ÷ Interest

Liquidity Ratios

Liquidity ratios indicate your company’s ability to meet short-term debt obligations without raising extra capital.

1. Operating Cash Flow Ratio

This ratio indicates your business operations’ cash flow to its current debt. It indicates how liquid your business is in the short term because it links cash flow with its current debt.

Operating Cash Flow Ratio = Cash Flow From Operations ÷ Current Liabilities

If the ratio is below 1, your business lacks enough cash flow to settle its short-term debt. It could indicate that you might be unable to continue operating. 

2. Current Ratio

The current ratio shows whether or not your business can settle its short-term (or current) liabilities. It’s more accurate if the inventory is liquid. 

Since current assets and liabilities are short-term, you expect to turn those assets into cash and pay off those liabilities within a year. 

Current Ratio = Current Assets ÷ Current Liabilities

3. Quick Ratio

Also known as an “acid test,” a quick ratio is similar to the current ratio but excludes inventory. The ratio is a good indicator in instances where it’s hard to convert inventory into cash. While a ratio of 1 is recommended, the figure varies by industry. 

Quick Ratio = (Current Assets – Inventory) ÷ Current Liabilities

Operational Efficiency Ratios

Operational efficiency ratios shine a light on your firm’s primary activities. You determine them using data from your income statement and balance sheet.

1. Inventory Turnover

The inventory turnover ratio points out how your business turns inventory into cash. 

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory

To get the average inventory, add a specific period’s inventory balance to the previous period’s inventory balance and divide the result by 2. The period can be a quarter, for example.

2. Accounts Receivable Turnover

Accounts receivable turnover indicates how you’re managing your collections. A high figure usually shows that clients are settling their debts quickly. 

Accounts Receivable Turnover = Net Annual Credit Sales ÷ Average Accounts Receivable

To determine average accounts receivable, add starting to ending receivables over a period and divide by 2. 

3. Revenue Per Employee

You need to know your employees’ efficiency and productivity levels. A revenue per employee ratio helps you ensure that you’re managing your workforce efficiently. And benchmarking the figure against similar firms is recommended.

Revenue Per Employee = Annual Revenue ÷ Average Number of Employees in the Same Year

4. Return on Total Assets

This ratio points to how efficient your business assets are in generating profits.

Return on Total Assets = Net Income ÷ Average Total Assets

To determine average total assets, take the sum of starting and ending assets over the year and divide it by 2.

5. Average Collection (or Debtor Days)

Average collection approximates the duration it takes for your clients to meet their obligations. 

Average Collection = 365 X (Accounts Receivable Turnover Ratio ÷ Net Credit Sales)

Where net credit sales= Sales –Sales returns- sales allowances

Let Visory Handle the Calculations

Financial ratios reveal a snapshot of your business, helping you understand its health at a particular point in time. You (the business owner), lenders, and investors want to look at those figures to make decisions. That’s why you need to crunch those numbers.

But if your plate is already packed full with other equally crucial tasks, you need a helping hand. That’s where Visory steps in.

It’s time to dump daily spreadsheets. Bring Visory’s team of experts to manage and streamline your bookkeeping, payroll, reporting, and account tasks so you can return to big-picture business growth. 

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