Go Beyond the Numbers: The Real Value of Your P&L

/in /by

As a business owner, you want to use every tool at your disposal to drive growth.

But are you overlooking an important one that’s sitting right there on your desk?

Your profit and loss statement (P&L) is much more than a measure of your bottom line. It has the potential to reveal practical ways to make better decisions about your business, if you know how to read it properly.

In this article, we’ll explore the insights that a profit and loss statement can provide, and how these insights can support the growth of your enterprise.

You have the numbers, but are you using them?

Running a growing business, you have plenty of numbers. Every month or quarter, you’ll receive a P&L sheet that summarises your business’s income and total expenses. At the bottom, it will show whether you made or lost money.

It’s easy to fall into a pattern: glance at revenue, check profits, move on. But a P&L sheet can be so much more. More than a box-ticking exercise for compliance. More than a record of the past.

A P&L sheet can help shape the future of your business.

Understanding profit and loss statements can inform many aspects of your business, from pricing strategy and resource allocation, to investment decisions and operational improvements. It highlights opportunities for growth, signals early warning signs, and ensures every dollar earned contributes meaningfully to profitability.

That’s its real value. It helps you understand what’s affecting business performance, identify which activities are genuinely driving growth, and determine whether growth is sustainable.

Dig deeper, and a P&L sheet goes from a simple financial summary to a useful tool for guiding your strategic decisions.

Why revenue is only the start of the picture

It’s easy to be seduced by revenue figures, especially if they are going up. A rising top line feels like success, a sign that your business is hitting targets and growing. However, revenue means only so much in isolation. It’s only within the context of the rest of the P&L that it becomes really useful, rather than a metric with the potential to mislead.

For example, your P&L statement shows that your sales are going up. Great. But if the cost of delivering those sales is rising at the same time, you may be earning less per sale. Or if you are offering discounts to attract new clients, your profitability could well be declining. On paper, total revenues look strong, but in reality, cash flow and margins are under pressure.

Revenue figures can only tell you so much. On their own, they rarely give you a solid idea about things like efficiency, cost control and the sustainability of future growth. It’s like the news, the real story lies beyond the headlines. Understanding how revenue interacts with costs, margins, and operating expenses is where actionable insights lie.

5 key signals your P&L can give you

Beyond income and expenses, your profit and loss statement also gives you valuable signals. Here are five key ones to look out for.

1. Revenue is growing, but profits aren’t

If sales are climbing while profit is staying flat, the extra effort behind those sales might not be efficient. There’s more activity, but without the return to justify it. This could also mean you are discounting too heavily. Identifying these sorts of issues can feed into plans to make your operations more effective.

2. The cost of sales is increasing

Sales are good. However, if the cost of delivering sales is too high, your bottom line will take a big hit. Rising costs (whether from suppliers, project overruns or simply process inefficiencies) can have a significant impact, even if your net income is increasing.

3. Overheads are scaling fast

For any expanding business, the ideal is that operating costs grow in line with revenue. However, when overheads rise faster than sales, you’ll see more downward pressure on your profits.

4. Headcount growth is outstripping returns

To grow your enterprise, hiring more staff is essential, but those extra wage costs must be matched by greater output and efficiency. The P&L statement can show if you are overstaffed, under-utilising resources or pricing your produce or service too low to cover all your costs.

5. The business is busier, but not better

A busier business means a healthier business, right? Not always. If rising revenue coincides with shrinking margins and/or increasing overheads, you might need to review how your team is working.

Gross profit: a clear view of sales performance

One of the most telling metrics on your P&L sheet is gross profit. It shows exactly how much money your business makes from its core activities, after the costs of producing or delivering them are accounted for.

While revenue tells you how much money is coming in, gross profit shows how healthy what you’re offering to the market really is. It’s also a “pure” metric, as it just looks at the inputs and outputs of a particular product or service and doesn’t include more general expenses like operating costs.

So, what can you learn from gross profit figures?

A quick glance at a P&L statement might suggest a product or service is selling well.

In contrast, the gross profit might then indicate that, while that’s certainly true, the costs to deliver it are actually very high, meaning its profitability is limited.

On the other hand, a service or product with high margins might not make up the bulk of your revenue. However, because its costs are low, it makes a big contribution to the bottom line. That sort of insight could shape or change your marketing strategy, so it places more focus on the products with a higher margin.

Understanding gross profit can inform your decision-making in many areas, from pricing and supplier negotiations, to your product mix and resource allocation. What’s more, if you monitor gross profit over time, you can spot trends and act before they become issues.

What your expenses reveal about the business

Leading a business is not just about understanding what you earn. Knowing what you spend is just as important. After all, operating and indirect costs can either support or suppress growth. You want to get maximum value from every dollar your business spends, and analysing the P&L figures can help achieve that goal.

For example, rising overheads. If your profit and loss statement shows that they’re going up, one interpretation is that the business is growing. However, that might not be the whole story. The costs could be rising more than your revenue, signalling that you might have operating inefficiencies or habits that have led to cost creep.

The same goes for recurring costs, such as utilities and insurance. These can reveal patterns over time. It’s a line of the P&L statement that may seem minor, but these sorts of costs can accumulate over time, and vary in response to a range of external factors. If you’re not across them, you could end up having fewer funds available to invest in areas that will drive growth.

How the numbers can help you spot issues early

A P&L statement can be your early warning system. If you can read the patterns around revenue, margins and overheads, you can often spot and fix problems before they become severe.

Even incremental increases in aspects such as staff headcount or supplier costs can accumulate over time and limit your profitability. Digging into the data and identifying these sorts of trends lets you act early rather than react late, whether that means adjusting your pricing, simplifying your processes or reallocating resources.

Spotting the minor moves on your P&L can be an important step in preventing any issues from becoming bigger problems.

Linking the P&L to your strategic goals

Your P&L statements are generated at least quarterly and often monthly. So it can be tempting to see them as something of a short-term metric, numbers relevant only for the here and now.

In fact, your P&L figures can help shape the bigger picture of your business. They can show how your resources are currently supporting your long-term objectives, and also indicate how to support those goals moving forward. Your P&L can shift from a snapshot to a key planning tool.

Let’s say that you’re keen to move into a new market. The P&L statement can tell you whether your current products or services are generating sufficient margin to fund this expansion. You can also evaluate investments like talent hiring, technology upgrades and new product launches against the P&L to make sure they are contributing to your long-term goals.

So, if you’re simply scanning your P&L, glancing at revenue and net profit before setting it aside, you’re missing out. There is a lot more it could be telling you.

Take control of your P&L with Visory

We can help with that. At Visory, our experts can help you get more value from your P&L. Our certified experts, working with our proprietary financial software, can help you analyse the numbers to understand what your P&L is truly telling you, giving you important insights to drive your next move.

To find out how we can help you make the most of your financial reports, book a consultation with an expert today.

FAQs

Can a P&L help me make decisions about pricing?

Yes. Your business profit and loss statement reveals the relationship between revenue, direct costs and gross profit, helping you judge whether your current pricing is sustainable. For instance, are your gross margins shrinking? If so, you might be underpricing or offering too big a discount.

How do I use a P&L alongside the cash flow statement and my balance sheet?

Each of these tools gives you something different. The P&L statement shows profitability over a certain period, such as a month or a quarter. Cash flow statements detail the timing of money coming in and going out of the business. A balance sheet, meanwhile, is a record of your assets and liabilities at a particular point in time. Use them together and you get a much fuller picture of the business’s financial health. For example, your P&L might show a profitable month, but cash flow could highlight delayed customer payments or a buildup of inventory.

Is a profit and loss statement the same as an income and expense statement?**

Broadly, yes. Both of these financial statements track revenue, costs and business expenses. So they are showing you the money coming in and going out. However, the profit and loss statement is considered a more formal financial report, and is the one used by accounting teams. An income and expense statement is more informal, often used just internally within the business.

How can I use my P&L to gain better business profit insights?

Your P&L is a great resource for understanding exactly where your profits are coming from, and where they aren’t. Analyse profit by product line, service, department or client segment, and you can identify where the business is performing most effectively. Once you know which areas are contributing real profit, you can make strategic decisions about where to focus effort, investment and marketing resources.

I’m new to this, where do I start with P&L statements?

Visory can provide a full suite of P&L services, wherever you are in your growth journey. From creating a bespoke profit and loss statement template to providing high-level financial management and data insights, think of us as your business performance partner. Connect with an expert to find out more.

#


NFP Financial Reporting That Drives Board Decisions

/in , /by

Australia’s charity sector employs 1.54 million people and manages $222 billion in annual income across some demanding reporting and compliance requirements. Yet most NFPs at the $500K-$20M band are not getting the financial clarity their spending on finance should deliver. The result: board meetings that default to scrutiny instead of strategy, acquittals that become fire drills, and growth decisions that sit in “let’s revisit next quarter” for years. The gap is not leadership capability. It is financial infrastructure – accurate bookkeeping, clear income stream tracking, and narrative-ready reporting that gives the CEO the confidence to lead with authority.

The board meeting you already know

There is a version of the board meeting that most NFP CEOs know too well.

You have prepared thoroughly. You have read the reports. You know your programs are delivering. But when the finance agenda arrives, something shifts. A slight tightening. A careful choice of words. An awareness that the numbers might not quite tell the story your organisation deserves.

It is not a crisis. Nobody is worried. But nobody is building, either.

This is where a lot of NFP leaders find themselves. Capable. Confident in their strategy. Clear on where the organisation needs to go. But held back by financial infrastructure that has not kept pace with the ambition.

You are ready. The system around you is not.

We see this pattern across NFPs at every point in the $500K-$20M income band. The CEO has the vision. The board has goodwill. What is missing is the financial reporting layer that turns goodwill into backed decisions.

The gap is infrastructure, not intelligence

You are operating in a financial environment with real complexity. Multiple income streams with different conditions. Grant cycles that do not align with operational rhythms. ACNC (the Australian Charities and Not-for-profits Commission – the national regulator for charities) reporting requirements that scale by size tier. And a need to plan forward while managing significant uncertainty.

What you are missing is not understanding. It is access to the right financial expertise, presented in a way that serves leadership rather than just satisfying compliance.

Your bookkeeper closes the books, eventually. The numbers get compiled into a report. But the report is built for an auditor, not a decision-maker. It tells you what happened. It does not tell you what it means or what to do next.

The ACNC’s 11th Australian Charities Report found that only 73.4% of charities submitted their Annual Information Statement on time. That is compliance reporting. If the compliance reporting is late, what does internal management reporting look like? In our experience, worse.

It shows up at the board table. Strategic conversations get deferred because the financial picture does not feel solid enough to build on. The board is not adversarial – most NFP boards are people who believe in the work. But without a clear financial narrative, they receive information rather than make decisions.

That gap is almost always a financial infrastructure problem. And it is solvable.

What the right financial infrastructure actually delivers

When you have the right financial expertise around you, reporting changes fundamentally. It stops being a compliance artefact and becomes a leadership tool.

For NFPs, where income rarely comes from a single source, this matters more than most leaders realise. Grants, government funding, donations, fee-for-service income, and philanthropic contributions each carry their own timing, obligations, and risk profile. When those streams are tracked accurately and presented clearly, you have something powerful: a precise picture of where income is coming from, when it arrives, and what it means for your capacity to act.

Consider the difference:

Before: reactive reporting. The board pack arrives day-of or late. It is a set of financial statements. The Treasurer (the board member responsible for financial oversight) spends an hour interpreting it. The CEO answers questions defensively. The program expansion discussion gets deferred.

After: narrative-ready reporting. The board pack lands in directors’ inboxes days before the meeting. It includes plain-language narrative: where we stand, what changed, what it means. Restricted funds (money legally committed to a specific purpose) and unrestricted funds (money available for general operations) tracked separately. Forward view showing cash, pipeline, and capacity 12 months out. The CEO sets the agenda. The program expansion gets a decision.

Your role is not to be the finance expert. It is to lead with the confidence that finance expertise provides.

The six pillars below capture what that infrastructure looks like in practice.

NFP Financial Reporting Framework

Six pillars from stable foundation to growth confidence

Foundation

Accurate income streams

Every funding source tracked separately and reconciled. Grants, government, donations, and fee-for-service – each with timing, obligations, and risk profile clearly visible.

Consistent rhythm

Monthly close, every time

Books close on time without exception. Reporting is comparable across periods so trends become visible, surprises become rare, and you are never caught off guard.

Narrative clarity

Numbers that tell a story

Financial data translated into plain language a non-financial board can act on. Here is where we are. Here is what it means. Here is where we are going.

Forward visibility

Leading, not lagging

Cash position, funding pipeline, and service capacity visible 12 months out. You lead proactively, making commitments from a position of clarity.

Board-ready

Built for strategy, not scrutiny

Reporting structured so the board engages rather than interrogates. You walk in confident. Great questions get asked. Decisions that were deferred finally get made.

Funder confidence

What funders and donors back

Restricted and unrestricted funds clearly separated. Stewardship of previous grants demonstrated. Acquittals prepared as a running state, not a last-minute scramble.

A CEO who leads. A board that backs. Donors who trust. An organisation that grows.

The board meeting changes first

Walk into a board meeting with genuine financial clarity and the room responds differently. Not dramatically – there is no single moment where everything transforms. But the dynamic shifts in ways that compound.

Without a clear financial narrative, boards default to scrutiny. They ask questions because they need to fill in gaps. The meeting becomes a performance review when it should be a strategy session.

When you walk in owning the numbers – with the confidence that comes from reporting you trust – questions become conversations. Board members start bringing their expertise rather than their doubts. The program sitting in consideration for two board cycles gets a proper conversation. The staffing decision gets made because the forward projection exists and everyone trusts it.

For many NFP CEOs, this is the moment their board stops being a governance obligation and starts being a genuine asset.

We see this consistently. The shift is not about the CEO becoming more capable – they were always capable. It is about removing the gap between what they know and what they can demonstrate. When the financial foundation is accurate and current, existing capability becomes visible and actionable.

The confidence donors and funders are looking for

Financial clarity does not stop at the board table. It travels into every conversation where you are making a case for your organisation’s future.

Grant bodies, government funders, and philanthropic donors are sophisticated audiences. They have seen plenty of compelling mission narratives without the financial substance to back them up. What distinguishes the CEO who secures funding is often not the strength of the program – it is the confidence and accuracy with which they speak to the financial position.

A CEO who can present a clear breakdown of income streams, articulate how restricted and unrestricted funds are managed, demonstrate stewardship of previous grants, and show a credible forward projection is presenting something rare. Not just a good cause – a well-run organisation. That is what funders back.

Donor relationships work the same way. When you speak confidently to how donations are tracked, reported, and connected to outcomes, trust deepens. Trust becomes loyalty. Loyalty becomes advocacy. Financial confidence is a fundraising asset, a funder relationship asset, and a reputation asset – all flowing from the same source.

What changes with the right financial infrastructure

Before vs after: reactive to confident

Before: Reactive After: Confident
Board pack Arrives day-of or late In inboxes days before the meeting
Format Financial statements only Narrative-ready: where we stand, what changed, what it means
Restricted funds Tracked in a spreadsheet (maybe) Segregated, reconciled monthly, visible at any point
Forward view “Better picture next quarter” Cash, pipeline, capacity – 12 months out
Acquittals Fire drill after the grant period Running state – ready the day the period closes
Board dynamic Scrutiny Strategy

Growth becomes the conversation

Once the board trusts the financial picture, the agenda changes. The conversations that were always deferred start becoming live.

New program development. Service expansion. Investment in people – promotions, key hires, capability you have been wanting to build. These are the decisions that build organisations over time. They all require the same precondition: a board confident enough in the financial position to say yes.

That confidence comes from clarity, not optimism. A board that can see reserves, forward commitments, funding pipeline, and capacity can make decisions that a board on incomplete information cannot.

The ACNC does not set a single level of reserves appropriate for all charities – the right amount depends on each organisation’s circumstances, income volatility, and risk profile. Common sector guidance suggests 3-6 months of operating expenses as a starting range. But the number matters less than knowing the number. Most NFPs we work with cannot tell you their unrestricted reserves position on demand. That is the gap.

The leaders known for building – growing programs, expanding impact, attracting the best people – are almost always leaders with the right financial infrastructure operating around them. Not because stability is the goal. Because stability is what makes ambition executable.

The sequence that matters

Stabilise – Build – Understand – Grow

1Stabilise the data foundation

Get the bookkeeping right. Accurate, current, every month. Restricted and unrestricted funds tracked properly. Payroll compliant. This is the layer everything else is built on.

2Build reporting rhythm

Monthly close on time. Board-ready packs with narrative. Forward visibility 12 months out. Acquittals as a running state.

3Understand program economics

Program efficiency ratio (the proportion of total spending going directly to programs) tracked by program. Which are sustainable? Where is investment needed?

4Invest in mission growth

With reserves, liquidity, and program economics understood, pursue growth from strength – new programs, new income streams, key hires – rather than hope.

Note: The sequence matters. Skip step 1 and everything built on top is unreliable.

Confidence compounds

Financial confidence in an NFP context accumulates. Each board cycle where you present clearly builds trust. That trust creates latitude – the space to propose bold things, to advocate for your organisation’s next chapter with authority.

When you know what the next 12 months look like financially, you can make commitments to people. You can invest in capability. You can build the team that carries the mission forward.

This is what the right financial infrastructure enables. Not just better board meetings – a better organisation. One where the leader leads, the board champions, and the people who do the work can see that someone is building something worth being part of.

Solid ground

The NFPs that grow are not always the ones with the biggest budgets. They are the ones led by CEOs who walk into every board meeting, every funder conversation, and every donor relationship knowing exactly where they stand.

When the foundation is solid, the board becomes a team. Funders become partners. And you get to lead – not just manage, not just report, but genuinely build something.

Financial clarity is not the end goal. It is what makes the end goal possible.

Frequently asked questions

What does good NFP financial reporting look like?

Good NFP financial reporting goes beyond compliance. It includes accurate income stream tracking across grants, donations, and fee-for-service; clear separation of restricted and unrestricted funds; a consistent monthly close; narrative-ready board packs in plain language; and forward visibility on cash position and capacity at least 12 months out. The goal is reporting that drives decisions, not just satisfies auditors. Visory’s reporting and insights service is built around this standard.

How much should an NFP hold in reserves?

There is no single rule. The ACNC does not prescribe a specific reserves level – the right amount depends on income volatility, restricted-fund load, and risk profile. Common sector guidance references 3-6 months of operating expenses as a starting range. The critical distinction is between total reserves and unrestricted reserves – an NFP can appear cash-healthy while most reserves are restricted and unavailable for operations.

Why does my board default to scrutiny instead of strategy?

Boards default to scrutiny when the financial picture has gaps. If reporting arrives late or lacks narrative context, board members fill the gaps the only way they can – by asking questions. When a CEO presents with clear, confident, narrative-ready reporting, the board’s posture shifts. The fix is almost always infrastructure, not board management.

What is an acquittal and why does it matter?

An acquittal is a report back to a funder showing that grant money was spent as intended. Late or inaccurate acquittals damage funder relationships and future funding prospects. Best practice is to maintain acquittal readiness as a running state – so the report can be produced within days of the grant period closing, not weeks later.

Can an NFP get strategic financial insights without a full-time CFO?

Yes. Most NFPs at the $500K-$20M band do not need a full-time CFO but always need the insights one would provide. The right partner delivers accurate bookkeeping as the foundation, then layers insights on top: cashflow forecasting, program-level performance, board reporting, and action-ready recommendations for decisions like new programs, income diversification, and hiring. See how Visory Insights works.

Ready to move from reactive to ready?

Visory works with NFP leaders to build the financial infrastructure that makes growth possible. Accurate bookkeeping and payroll as the foundation. Insights ready for action-planning and decision-making on top.

Book an obligation-free discovery call →

Benchmarks referenced in this article are drawn from the ACNC’s Australian Charities Report (11th edition, 2025) and common sector guidance. Every NFP’s financial position is different – the ranges cited are reference points, not prescriptions. For tax, legal, or audit-specific questions, consult your accountant, lawyer, or an ACNC-registered advisor.

Guide to The 4 Financial Statements That Bookkeepers Prepare

/in , /by

Bookkeepers make sure your business runs like a well-oiled machine. They can tackle your payroll, pay all of your bills on time, and spot accounting errors. Once you work with a professional bookkeeper, you’ll wonder what you ever did without one. 

Among the most important tasks of a financial bookkeeper is maintaining your essential reports.  The types of financial statements you’ll assign to a bookkeeper include: income statements, balance sheets, cash flow statements, and statements of owner’s equity. Combined, these accounting documents reveal the financial health of your business. 

Which types of financial statements do bookkeepers prepare?

Financial reporting serves a few key purposes for any business. Accurate reports allow your business to:

  1. Understand the current assets and debts for your business. 
  2. Identify positive or negative trends in revenue and spending. 
  3. Make informed decisions about how fast to scale up. 
  4. Know when you can and can’t afford to hire new staff. 
  5. Provide concrete financial numbers to provide to potential investors. 

Four of the primary documents your bookkeeper will prepare for you are outlined below. Are you familiar with these bookkeeping reports? You should be.

Income Statement

An income statement, sometimes called a profit and loss statement, tells you what you spent versus what you earned in a particular time period. The report usually has two headings: Revenue and Expenses. You want revenue to exceed expenses at the bottom of the page. This yields a net profit. 

You can create an income statement over any period of time. Many businesses do them monthly, quarterly, and/or annually. By comparing income statements from different time periods, you can begin to understand important trends. When are your costs the highest? During which months do you have the most sales? Your bookkeeper will have plenty to analyse. 

The ultimate goal when producing an income statement is to make sure you didn’t spend more than you earned during a particular period of time. You also want to use what you learn from an income statement to figure out where you can cut costs and generate more revenue to increase your net profit. 

Balance Sheet

A balance sheet goes one step further than an income statement. It looks at the big picture of your business at a specific point in time, considering data beyond revenue and expenses. More specifically, a balance sheet outlines your total assets, total liabilities, and total shareholder equity on the day you create the report. 

Your assets include the cash in your bank account, any property that you own, and other physical assets that can be turned into a profit in the future. Business liabilities include outstanding vendor bills, loan balances, and any debt that must be paid in the near future. Your shareholder equity is the percentage of your company that is currently owned outright by the owner of the business.

Balance sheets have two sides. In one column, you list your current assets. On the other side, the current liabilities and stakeholder equity. The two sides should be equal. Assets = (Liabilities + Shareholder Equity). 

Your balance sheet reveals how liquid your business is, how efficiently you are using your assets, and whether you have any financial wiggle room to have a bad quarter. Over time, you want the balance sheet to trend in an upward asset direction. As you pay down liabilities, your assets and equity will increase. 

Statement of Cash Flow

The vast majority of slow businesses that fail, do so because of cash flow problems. This makes cash flow statements some of the most important financial reporting your bookkeeper will do. Your cash flow statement tracks the inflow and output of cash and cash equivalents for your business. 

Read More: What is a Cash Flow Statement?

Your cash flow statement usually has three main sections: operating activities, investing activities, and financing activities. Operating cash flow relates to your businesses core business. The sale of your goods and services falls into this category. Investing cash flow will encompass things like buying or selling property. Financing activity cash flow covers getting cash from an investor or bank, and paying interest on a loan. 

The ultimate goal of a cash flow statement is to find out how much cash your business has on hand. You can produce a cash flow statement as often as you think is relevant, though likely not more than once a month. 

Statement of Owner’s Equity

The owner’s equity reflects how much the owner possesses outright. If your business is worth $100,000 and you owe $50,000 in liabilities, the total equity is $50,000. A statement of owner’s equity is a document that explains any changes to the equity section of your balance sheet. 

Your statement begins by outlining the beginning equity balance during the time period being measured. Then, you factor in net income and the owner’s contributions. Finally, the statement considers any net losses and the owner’s withdrawals. This leaves you with an ending equity balance. 

The goal of your statement of owner’s equity is to determine if your equity is trending up or down. If you have lost equity in the business, your bookkeeper can analyse what net losses or additional debt affected your equity. 

Getting help with your financial reporting 

There are many benefits to regular financial analysis. Reporting helps you identify your liquidity, spot positive or negative trends, and incentivise investors to consider your business. As your business grows, it’s difficult if not impossible to keep up with your reports without a dedicated bookkeeper. The types of financial statements required to run a thriving business might be done quarterly — but they rely on an accurate accounting of daily transactions and weekly invoices.

You don’t have to get lost in the woods. There are experienced bookkeepers waiting to help you file essential reports. They can also offer meaningful insights about your financial health. Learn more about Visory’s bookkeeping services today. Our industry experts can help your business thrive and offer CFO-level advice about your financial affairs.

Complete Guide to Business Reporting

/in /by

Business reporting is the process of communicating financial and operational information about a business to stakeholders such as shareholders, creditors, and employees. This information is typically presented in financial statements, which show a business’s financial performance over a period of time.

Business reporting is essential because it helps business owners and managers make informed decisions about the business. It also helps stakeholders understand the company’s financial health and assess its risk.

In Australia, business reporting is regulated by state, territory, and Australian governments, as such businesses are required to follow specific reporting standards. The Australian government has developed the Standard Business Reporting (SBR) program to streamline business reporting.

In this article, we will discuss the critical aspects of Standard Business Reporting (SBR)  in Australia. We will also provide some tips on how to get started with business reporting.

What is Standard Business Reporting (SBR)?

Standard Business Reporting (SBR) is a program that streamlines business reporting requirements for Australian businesses. It is a joint initiative of the Australian government, state and territory governments, and businesses.

SBR was introduced in 2010 and is currently used by over 1 million businesses in Australia. It makes it easier for businesses to comply with their reporting obligations by providing a consistent data format that can be lodged electronically with all relevant authorities.

Under SBR, businesses only need to report their business activity once, using software that they are already familiar with. The data is then automatically lodged with the Australian Taxation Office (ATO) and any other state or territory government agencies to which the business reports. SBR-enabled software simplifies bookkeeping and payroll processes and reduces the risk of errors in business reporting.

The ATO is the lead agency for SBR and is working with other government agencies and the business community to roll out SBR across Australia. Adopting SBR is voluntary for businesses, but the ATO encourages all businesses to take advantage of the benefits that SBR can offer. 

What Are The Benefits of Using Standard Business Reporting?

The benefits of using SBR include:

  • Reduced compliance costs: businesses only need to report their business activity once, using software that they are already familiar with. Therefore, businesses save time and money on compliance costs.
  • Improved data quality: SBR-enabled software simplifies bookkeeping and payroll processes and reduces the risk of errors in business reporting. This enhances the quality of data reported to government agencies.
  • Greater certainty: businesses have greater confidence in reporting obligations, as SBR provides a consistent format for business reporting.
  • Greater transparency:  businesses can track the progress of their reports through the SBR lodgment system. This provides greater transparency and accountability in business reporting.
  • Reduced paperwork: businesses no longer need to manually complete paper forms or lodge reports, which reduces the amount of paperwork businesses need to deal with.
  • Greater efficiency: businesses can lodge their reports electronically, which reduces the time and resources required to comply with business reporting obligations. Businesses can then spend more time running their business rather than completing paperwork.

What Are The Most Important Business Reports to Prepare?

Businesses may need to prepare several different business reports depending on their business activity and reporting obligations. The most crucial business reports include:

  • Annual financial statements: businesses need to prepare annual financial reports, which summarise the business’s financial performance and position over the past year.
  • Business activity statements: businesses need to prepare business activity statements, which report on the business’s GST liability and other taxes.
  • Payroll reports: businesses need to prepare payroll reports, which summarise the business’s payroll information.
  • Tax returns: businesses need to prepare tax returns, which report on the business’s income and expenses.
  • Other business reports: businesses may also need to prepare other business reports, depending on their business activity and reporting obligations. These include reports on environmental performance, employee relations, health and safety, and marketing.

These are just some of the essential business reports that businesses may need to prepare.

How Can You Streamline Your Reporting?

There are several ways you can streamline your business reporting:

  1. Use software that supports Standard Business Reporting: Using software that supports SBR will simplify your bookkeeping and payroll processes and reduce the risk of errors in your business reporting.
  2. Use the ATO’s online services: the ATO offers a range of online services that can help you streamline your business reporting, including e-services for business activity statements and tax returns.
  3. Use a registered tax agent: using a registered tax agent can help you save time and money on your business reporting. A registered tax agent can help you prepare and lodge your business activity statements and tax returns and provide advice on complying with your business reporting obligations.
  4. Keep accurate records: keeping accurate records of your business transactions will simplify your business reporting and help you avoid penalties for errors.
  5. Lodge your reports on time: lodgment deadlines vary depending on the type of report and the business’s reporting obligations. However, most business reports are due on a quarterly or annual basis. For example, business activity statements are typically due every quarter, while tax returns are generally due annually. Failing to lodge your business reports on time can result in penalties from the ATO.
  6. Review your business reporting regularly: reviewing your business reports regularly at least once a year will help you identify any errors or areas of non-compliance.

There are several government websites that provide more information on how to streamline your business reporting, including information on software that supports SBR and the ATO’s online services. These resources include:

Conclusion

Business reporting is a vital part of running a business. There are several ways of streamlining your business reporting, including using software that supports SBR, using the ATO’s online services, and using a registered tax agent. Keeping accurate records and lodgment deadlines will also help you avoid penalties from the ATO. Reviewing your business reports regularly will help you identify any errors or areas of non-compliance.

Need Help With Your Business Reporting?

If you need help with your business reporting, Visory is here for you. We are a team of business reporting experts who can help you with all aspects of business reporting, from bookkeeping and payroll to preparing tax returns. We pride ourselves on providing high quality, personalised service to all our clients. Our team can help you streamline your business reporting and ensure you are compliant with all your business reporting obligations.

Contact us today to learn more about how we can help you with your business reporting needs.

What is the Purpose of a Balance Sheet?

/in /by

Recording daily transactions gives you a granular look at spending and income. But sometimes you need to pull back and look at the big picture; a balance sheet makes it easier. Often prepared on a quarterly or annual basis, a balance sheet outlines your business’s total assets, liabilities, and equity. 

A balance sheet has a debit column and a credit column. As its name suggests, these two sides should balance out. If they don’t, it may reveal an accounting error, missing inventory, or other problems. 

If you’re not already preparing this document, it’s time to start. Let’s talk more about the purpose of a balance sheet and how to read it. 

What is a balance sheet?

You can learn a lot from your business’s balance sheet. This report explains what you owe other people, the value of your current assets (both cash and property), and the worth of your shareholders’ ownership. In short: It tells if you’re on the right financial track or if you’re in the red. 

A balance sheet only reveals your financial position in the moment the report is created, which is why many businesses choose to prepare it multiple times throughout the year. You can get a sense about how quickly you are paying down debt and the scale of your sales growth by comparing balance sheets quarter-over-quarter. 

What is included in the balance sheet?

There are three main aspects to balance sheet reporting. Combined, they reveal the worth of your assets, which are equal to your liabilities plus your equity. 

Assets

The assets portion of your balance sheet tracks the things your business owns that have value. This includes current assets, like the cash in your bank accounts and short-term investments.

Assets also include non-current assets, which may also be called capital assets. Non-current assets are items of value that your company plans to keep over time, such as a fleet of vehicles or office equipment.

Intangible assets like intellectual property also go in this category. A registered patent or proprietary process brings value to your business — even if you have yet to translate it to hard cash. 

Liabilities

Liabilities measure anything your company owes to another person or entity. This includes both short- and long-term debts. Short-term liabilities are debts that must be paid within the next year. This could be anything from a short-term loan to a utility bill.

Long-term liabilities are debts that are not due within 12 months of your balance sheet date. These debts could be property mortgages, deferred tax liability, or vehicle loans. On most balance sheets, long-term (non-current) liabilities are listed separately from short-term liabilities.

Equity

The owner’s equity – sometimes called the shareholders’ equity – is the portion of a business that the shareholders own after liabilities are subtracted from the total assets. If you  have $500,000 in assets and $200,000 in liabilities, the equity in your business is $300,000.

What is the purpose of a balance sheet?

If you’re already keeping on top of bookkeeping like your general ledger and accounts payable, what is the purpose of a balance sheet, really? This document provides a unique snapshot of your business’s financial position and can help you catch missing cash. But that’s not all. Here are three main reasons to create this document throughout the fiscal year. 

Determine your business’s financial health

If you don’t have enough cash assets to cover your short-term liabilities, your business is on the brink of trouble. Your balance sheet shows you where your business is thriving and where it may be overextended. You can use it to determine your organisation’s net worth. Identifying your financial health is not just good for peace of mind. A positive financial picture may also allow you to secure more funding or attract investors in the future. 

Compare a business to its competitors

Your balance sheet also reveals your debt-to-income ratio. You can use it to predict annual revenue and forecast your quarterly earnings. You can take this data and compare it to your competitors’ public financial disclosures. Are you doing better or worse than your primary competition? A balance sheet is one tool that helps reveal your place in the market. 

Identify inaccurate record keeping

Both sides of your balance sheet should, well, balance out. Since assets = liabilities + equity, assets go on one side of your report, while liabilities and shareholder equity goes on the other side. The assets figure should equal the total of your debts and equity on the other.

For example: If you take out a $100,000 loan, the money is listed once as a long-term liability (the loan is a debt that must be repaid) and once as cash on hand (the lender gave you money, which is now a cash asset). Each time you make a payment, you subtract the payment amount from the liability column and the cash on hand. As you can see, a balance sheet is a helpful tool for identifying places where your assets and liabilities don’t match.

How to read a balance sheet

The first thing to look for in a balance sheet is proper accounting. If your assets don’t equal your liabilities and equity, you need to figure out where the numbers went wrong. Did you pay off a loan and forget to change your liabilities column? Maybe you spent money on equipment and forgot to add the expense to your accounts payable. Looking through receipts and bills to find the error can be tedious, but it’s important to balance the report.

You also want to compare balance sheets from quarter to quarter. This helps you determine when certain costs are lowest and when you have most cash on hand. Identifying trends may help you make informed purchasing and advertising decisions in the future.

Need some help preparing your balance sheet? As your business grows, tracking your costs, expenses, loans, equipment value, and other bits and bobs becomes more complicated. And that’s on top of processing regular payroll and staying on top of accounts payable. Let Visory help you with a virtual bookkeeping team. We can take over the heavy lifting in accounting so you can stay focused on brainstorming your next big idea.

Guide: How to Interpret Your Financial Reports

/in /by

Collecting financial data is well and good — but do you know what to do with it? Your annual reports and balance sheets won’t benefit your business’ financial health if you don’t analyse them.

When used properly, your financial reports allow you to make informed decisions. Interpreting financial reports tells you when you can afford to hire someone, when you need to cut back on travel expenses, if your operating expenses are skyrocketing during the summer, and more. 

Let’s talk about which financial reports your business should have and how to read them. Keep in mind, a virtual bookkeeping service can handle a lot of the heavy lifting so you don’t have to. 

Essential financial records for every business

With the right financial reporting, you have fast access to everything from your current costs of goods sold to your most recent accounts receivable. You can pull up day-to-day data like transactions and analyse important overall financial ratios, including your debt to equity ratio. Interpreting financial reports in a meaningful way requires the right data.

You need the right documents on your side to be financially literate about your organisation’s debts and assets. Here are some common documents any business should have in their financial reporting process. 

Let’s evaluate each form first, then we’ll break down how to read them. 

Balance sheet

The balance sheet is one of the most important living documents for any business. It reflects your current liabilities (debts), current assets (including money and property), and your stakeholders’ equity share. The formula typically used for this document is: assets = liabilities (a negative number that reflects money owed) + shareholder equity (a positive number that includes earnings and investments). 

What is the goal of a balance sheet? This document reveals the value of your assets, current debt, and cash in the bank at a specific moment in time. 

Profit and Loss statement

This document is sometimes called a profit and loss statement. As the name suggests, it lists your net income for a specific period of time. An income statement includes information such as your total revenue, the cost of goods sold, gross profits, operational expenses and interest costs. An income statement is often done as an annual report and compared to previous years.

What is the goal of an income statement? Businesses use this report to calculate their net profits after debt and expenses are considered. 

Cash flow statement

Cash flow statements are narrow in scope but important nonetheless. This document specifically measures the actual cash going in and out of your organisation. It includes cash you gain from operations and sales, cash gained or spent for investing, and incoming cash from financing/loans. 

What is the goal of a cash flow statement? Interpreting your cash flow statement lets you know how much hard cash is coming in and how much is going out. Obviously, you want a positive number that represents more money coming in than going out. 

How to interpret your financial reports

Interpreting financial reports takes time and consideration. Your analysis will be better if you know what to look for. Bookkeeping for professional services can be especially tricky because you may be counting billable hours as opposed to tangible assets, and outstanding debts affect your cash flow. 

When are your financial reports promising and when do they spell trouble? Here is how to read these three important documents. 

How to read a balance sheet

Your balance sheet gives you a snapshot of your businesss book value at a moment in time. When you subtract the debts from your equity to determine assets, remember that this figure can change — quickly. View your balance sheet as a temporary state of health. It does not reveal trends and it may not give you accurate projections.

You should interpret the resulting calculations in a balance sheet as the state of your company’s financial health at the current moment. It can reveal if you are in the red or black. To identify larger patterns, you will want to combine the knowledge uncovered here with annual profit and loss statements and your year-over-year cash flow. 

How to read an income statement

This report does offer you a look into business trends.  Financial statement analysis related to an income statement may include an evaluation of gross profit (revenue minus cost of goods sold), a tabulation of expenses, a look at depreciation of equipment, and the total income before taxes. 

Things to look for in an income statement include when profits are highest and when they are lowest. Do you make less during winter months? If so, you can begin to brainstorm a way to cut costs then. You may also want to look at when costs are highest. An income statement should also be used to figure out how much money is spent to produce your product or services. 

How to read a cash flow statement

A cash flow statement is a part of your income picture. It can reveal patterns about where you are spending most and which streams of income bring in the most actual cash. Keep in mind that it only shows you cash flow for the defined accounting period. For big picture analysis, you want to construct annual cash flow reports. 

You want to analyse cash from operating, investments, and bank financing to get the most accurate picture of your cash flow. Cash coming in is called income and cash you spend is called out-goings. Your online bookkeeping should keep cash flow analysis separate from your revenue reports. 

How to read an annual report

Many businesses put out an annual report that reflects their overall financial health. This report is often aimed at potential investors. The report combines the cash flow assessment, latest balance sheet, and an income statement. 

If you are reading an annual report to potentially invest or acquire the company, pay attention to overall profits versus losses. Ask yourself if the business is able to pay its debts when they are due. Look at how quickly the business and its revenue has grown. Annual reports also contain information about what it costs to maintain the business. 

What does a financial report tell you?

A valuable part of interpreting financial reports is being able to make informed projections and decisions. But what can financial reports about your company tell you, and what can’t they tell you?

What an in-house financial report can tell you

Your financial reports can help you better understand a lot of aspects of your business affairs. You can identify trends and areas of overspending. In addition, your finance reports can tell you things like (but not limited to):

  • The growth rate of your revenue
  • How quickly you are paying down debt
  • Your payroll budget
  • When supply costs are lowest throughout the year
  • The current ratio (assets/liabilities) of your business
  • Net annual profits
  • Total financing expenses (interest and fees)
  • Non-current liabilities like leases
  • How quickly an asset is depreciating
  • When you can afford to give pay raises

What an in-house financial report can’t tell you

There are some things that your own reporting can’t tell you. To better predict your full financial future, you may need to analyse some outside sources and look to industry experts. For example, your business’s financial reports can not offer a comprehensive answer to:

  • What will our payroll costs be? You may be able to plan your hiring schedule using your existing information. But, you can’t usually predict when employees will leave. Turnover is expensive and yet it’s not something the previous year’s financial analysis can totally predict. 
  • What will our material costs be? If you work in construction and the cost of timber skyrockets, your budget will need to change drastically. You’ll need to turn to industry forecasts to estimate these expenses instead of business reports. The same is true of materials in most industries — outside cost trend information is key. 
  • How quickly can we grow? You can make a great marketing plan and predict sales growth. But sometimes it takes trial and error to determine what best resonates with your clientele. Internal reports are helpful with growth plans, but you also need to analyse competitors and industry trends. 

How to tell if your business is financially healthy

The main purpose of interpreting financial reports is to determine the health of your organisation. Are you thriving or flatlining? Look for steady reduction of your debt-to-asset ratio and an increase in cash flow for signs of overall health. You can also count lower costs and increased sales as a sign of good health. 

For a more complex analysis of your financial picture, consult with an expert. A virtual bookkeeper will make sure you never miss a quarterly report. Even better, they can provide insights about your accounts payable practices, your current liabilities, and operational costs. You’ll learn about red flags when there is still time to do something about them. 

Need some help interpreting financial reports? Learn how Visory can help you generate financial reports for your business and then give you advice.

What is an Expense Report?

/in /by

Keeping track of your expenses is an indispensable part of any small business. An expense report can help you track spending on a particular project, and your employees may submit expense reports to seek reimbursement for business-related expenses.

It’s not hard to create and use an expense report in your business, but there are a few things you should know. We’ll help you understand the basics of an expense report and how you can use these documents in your business.

What Is an Expense Report?

An expense report is a document used to track business or project spending. These reports should include any expense necessary for running your business or completing a particular project. You can even submit these reports to a virtual bookkeeping service to provide an accurate account of your business’ income and expenses.

What Is an Expense Report Used For?

There are four general uses for an expense report. One of the more common reasons to use an expense report is to reimburse employees who have to bear certain business expenses out of their own pockets. These expenses might include travel costs, accommodation, meals, or any other payment made using the employee’s own money or credit.

Business owners can also use expense reports to monitor spending made on a per-project basis. In other words, expense reports can be used to keep track of the money invested in a particular project, indicating how much profit a company might expect from the finished result.

Expense reports can also be part of your invoicing process. When billing a client for a product or service, you might also bill them for materials used or other expenses that became necessary for the project to be completed. 

As long as your client has agreed to cover these expenses (or a portion thereof) ahead of time, expense reports can be used to increase the accuracy of your invoicing process.

Finally, expense reports provide a clear record of business expenses, which can help you get organized when tax season rolls around. Depending on the expense, you may be able to write it off on your next tax return, though you’ll need supporting documentation (e.g., receipts) to validate each expense.

Business Expense Categories

Technically, your internal expense reports can include any categories you deem relevant to your business. However, most business owners prefer to mirror the classes that are associated with existing tax law.

The Australian government’s business website lists the following categories of business expenses:

  • Motor vehicle expenses
  • Home-based business expenses
  • Business travel expenses
  • Workers’ salaries, wages, and super contributions
  • Repairs, maintenance, and replacement expenses
  • Other operating expenses
  • Depreciating assets and other capital expenses
  • Carbon sink forest expenses

It’s also possible that your business might have unique business expenses or expenses unique to your industry. These should also be included on your expense reports, though you’d need to check with a tax professional to determine whether you can write off these specific expenses in the same way as those above.

What Should Be on an Expense Report?

Your expense reports should be clear and well-organized while keeping as much detail as possible. They should also be simple enough that your employees can easily fill them in with minimum training.

Every expense report should include information about:

  • Identity: Who purchased the item?
  • Department: Which department made this purchase?
  • Description: What was the nature of the item or service?
  • Vendor: Where was the item purchased?
  • Client: Was the expense related to a particular customer?
  • Project: Was the expense associated with a specific project?
  • Amount: What was the total amount of the payment?
  • Date: When did the charge occur? 

Your expense reports should also leave room to add any clarifying details surrounding the purchase. The expense report should be accompanied by supporting documentation such as receipts or invoices, so it’s good to remind employees to hang onto these documents so they can properly submit them.

Are There Different Types of Expense Reports?

Most companies prefer to use several different expense reports, generally organized according to the timeframe surrounding the expense.

One-Time Expense Report

For most situations, a simple one-time expense report can cover the one-off expenses your employees might incur. These expenses usually involve things like travel, airfare, fuel, and meals.

In this case, your expense report can be fairly basic and include only a minimum of data. The report should include the employee’s name, but the report itself can simply be a one-line description of each relevant expense, as well as the date on which the employee spent the money.

Employees should still be asked to save receipts whenever possible to supply adequate documentation. Otherwise, this simple approach works for most common business situations.

Monthly (or Recurring) Expense Report

A monthly expense report can be useful when your employees incur various expenses as a result of their employment. Traveling sales representatives, for example, might have a frequent need for travel or mileage reimbursement.

These templates might also be useful if you’re working on a project with recurring expenses. For example, you might contract a graphic designer or a web developer to help with marketing for various projects, and you can record these regular expenses on a recurring report.

These reports are also simple, though you can divide expenses into categories (travel, meals, etc.) to keep things simpler.

Long-Term Expense Report

You might also consider a long-term expense report, which you can use to track quarterly or even yearly expenses. Rather than monitoring specific projects or employees, a long-term expense report provides a snapshot of your company’s overall spending and financial health.

These reports are often further divided into monthly totals, which can then discern seasonal trends in spending. This information can help you with long-term business planning, similar to the reports generated using online bookkeeping.

Conclusion

Here at Visory, we pride ourselves on providing bookkeeping for professional services. We know it’s hard to juggle projects, employees, and your business’ books. 

That’s why we encourage business owners to use Visory’s online bookkeeping to stay on top of expenses. You’ll be able to keep better track of your expenses, and with a professional team handling your financial processes, you’ll have more time to focus on your core business.

Are CFO Services for Small Businesses Worth It?

/in /by

If you’re like most people, you’ve probably heard of a Chief Financial Officer (CFO), but believe that this is a position you’d only find in large businesses. 

However, if growing your business is a part of your strategic plan, you might want to consider how an outsourced CFO service can help you reach your financial goals and improve the overall health of your business along the way.

What Does a CFO Service Do for Small Businesses?

CFO services for small business can provide a variety of benefits, helping with long-term financial strategy as well as the day-to-day financial decisions necessary to maintain a business.

Business owners can expect a CFO service to provide assistance with financial tasks including:

  • Budgeting and variance analysis
  • Business performance review
  • Compliance
  • Preparing and managing financial statements
  • Tax planning and preparation

In short, CFO services for small business can help you with strategic financial planning, which may become increasingly essential as your business grows and expands.

Virtual CFO Services vs. Full-Time CFOs

Because of the value added by an in-house CFO, many businesses fill this role with a full-time employee. While the financial services provided by this individual are important, the costs can be prohibitive for small businesses. 

By outsourcing financial needs to an online firm, your financial needs can be handled by a dedicated support team that can provide professional service at a fraction of the price.

But saving money is only the start when it comes to the benefits provided by virtual CFO services for small business owners. These outsourced solutions can provide:

  • Specialised skills and knowledge
  • Access to the latest software
  • Consistent communication
  • Accurate reporting
  • Better cash management

The financial reporting offered by these CFO services can even help you to hone your business strategy and plan for the future. In many cases, these financial professionals can help you strategise and manage the expanding needs of your company.  

How Much Do CFO Services Cost?

Before you consider the costs of virtual CFO services, consider the costs of hiring a full-time accountant or financial team.

The Economic Research Institute reports that the average CFO salary is $265,336 in Melbourne, Australia. It’s unlikely that your business has the capital to hire these kinds of financial specialists, highlighting the strategic importance of CFO services for small business needs.

Finding the right CFO service is usually a lot easier than going through the process of hiring an actual employee. You’ll be able to make decisions faster and remain competitive when you’re not stuck investing time in the interviewing and hiring process.

So how much can you expect to spend? Virtual CFO services typically charge a monthly fee for their services. This fee can vary depending on such factors as:

  • The size of your business
  • Your financial needs and goals
  • The nature of the services provided
  • The experience of the team you hire

Some companies charge a fee of around $499 a month for their services, which is considerably cheaper than the costs of hiring a full-time employee.

How to Know When You Need a CFO Service

When is the best time to consider CFO services for small business? While there’s never a bad time to invest in your company, there are several signs that may indicate that it’s time to consider partnering with an online firm:

  • Your business is growing quickly
  • Your financial needs are changing rapidly
  • You’re looking to outsource or automate
  • You want to improve the return on investment of your current financial system
  • You lack detailed financial reporting about your company
  • You feel stressed or uncertain about your company’s financial future

In other words, a CFO service can be important when your business needs are changing, but you don’t have a full understanding of your company’s financial health.

This can be particularly important when you’re seeking out business loans or other financial services. Lenders may expect to see detailed reports to assess the health of your business.

Alternatively, you may simply need the assistance of a CFO service to help you get a better handle on your company’s financial processes and to streamline them for the road ahead.

Take the Stress Out of Running Your Business

If financial management has felt less like a strategy and more like a juggling routine, it’s time to consider how Visory can help. Our team of financial professionals can assist in improving the management of your small business, helping you move from the home office to the corner office as your business grows and expands. 

Explore our website to learn more about Visory’s financial services and discover how our CFO services can integrate into your small business.

13 Key Financial Metrics & KPIs for Professional Services

/in , /by

professional service business working at a table

Managing a professional services firm often involves moving at a frenetic pace. You must be able to seamlessly transition from things like reviewing a client proposal to reporting campaign results to business partners.

While these tasks are an essential part of managing your business, tracking financial metrics is equally important. These financial metrics allow you to stay apprised of various components of your firm’s overall performance. The practice of tracking this data is often referred to as online bookkeeping.

Chances are that you are already tracking a few business financial metrics. However, you may not be confident that you are monitoring the best data points.

Below, we have compiled a list of 13 key financial metrics that your business can leverage to help facilitate growth and improve profitability.

How to Check Your Financial Health

Thanks to modern software, there are plenty of options for checking the financial health of your professional services firm. You can track various metrics independently or partner with a firm that provides bookkeeping for professional services.

Many professional service providers find that allocating this responsibility to a third-party provideris the most pragmatic approach. These teams specialise in online bookkeeping services and can help find the perfect software for your industry. 

You can access this data from anywhere and detect concerning trends early on. This allows you to be proactive in taking control of your firm’s financial future.

How Often Should You Check Core Financial Metrics for Your Professional Services Business?

Many professional services business owners wonder how often they should check their financial metrics. You may even find yourself asking these very same questions. The simple answer? Frequently.

You can collect information about all of the best business financial metrics in the world. However, they will not do a bit of good unless you analyse them to gain insights about your firm.

Generally, we recommend assessing key performance indicators (KPIs) at least once per week. Develop a routine and check your metrics on the same day each week. While many of the data points outlined below may not show significant changes on a weekly basis, it is still important to review them regularly.

Some of the metrics detailed below may only need to be checked monthly or quarterly. Others, such as annual recurring revenue, can only be assessed yearly.

By routinely checking your business’ financial metrics, you can help increase revenue and improve profitability.

Metrics

1.   Revenue

Of all of the business financial metrics, revenue is one that all professional services firms should track. 

Revenue is an important data point to track. However, it does not provide a complete picture of your business’ overall performance. When it is paired with additional key performance indicators outlined below, revenue can tell you a lot about your current business model.

2.   Annual Recurring Revenue (ARR)

When you’re organizing your online bookkeeping services, it is also important to track ARR. ARR is a metric that quantifies income from annual services. 

For instance, let’s say that a particular client signed a two-year contract for $100,000. The ARR for that client would be $50,000 because that would represent how much you earn from that account per year. ARR is a predictable income stream that can help you to grow your business.

3.   Profit

When it comes to key business financial metrics, perhaps none is as important as profit. This data lets you know what your net income will be after expenses. Unlike revenue, profit gives a much clearer view of the health of your professional services firm. 

When you’re calculating profits, make sure to account for all expenses. This includes customer acquisition costs and costs of goods sold (COGS). If you offer ongoing service, COGS can be substituted for the cost of creating and maintaining your software.

4.   Qualified Leads:  MQLs and SQLs

Qualified leads are target clients that are primed to make a purchase. These buyers are already actively seeking information about your services and are deep in the sales funnel.

There are various types of lead-related business financial metrics available, depending on which types of services you provide. 

Marketing qualified leads (MQLs) are buyers that fit your defined target audience to a ‘T’.  Consumers in the MQL phase are aware that there is a solution to the problem they are facing. However, they are not completely aware of your product offering. 

Sales qualified leads (SQLs) are the B2B variant of MQLs. An SQL is a person with the authority to make a buying decision. Once you identify clients that are SQLs, it is time to present them with quality content to close the deal.

5.   Customer Acquisition Cost (CAC)

When a firm’s revenue is high, but profits are low, it is time to assess additional business financial metrics to identify the root cause of the problem. One such KPI is CAC.

CACrefers to the average amount spent to obtain new clients. Ideally, you want to have a low CAC and a high purchase rate per consumer.

For instance, let’s say that your CAC is approximately $15. This means it costs your firm $15 to acquire a single customer. If the average client is spending $100 AU, then your CAC to purchase ratio is good. However, if average purchase amounts and CAC are nearly even, then you may need to reevaluate your business strategy.

6.   Customer Lifetime Value (CLV)

Most of the business financial metrics on our list are great for all professional services firms. However, our next KPI is geared specifically toward established firms. 

CLV outlines how much a client spends on your services throughout their lifecycle. The lifecycle of your clients will be heavily dependent on your industry. Some professional services businesses will retain customers for years.

In order to calculate CLV, subtract CAC from the amount of total revenue earned from that customer. Acquiring customers cheaply and retaining them for years can help your business improve profitability.

7.   Proposals Sent

One of the more basic business financial metrics that we recommend tracking are proposals sent. Contrary to popular belief, the goal is not to send out an absurdly high number of proposals. Instead, you should focus your attention on targeting quality leads. 

If you find that your “proposals sent” metric has dropped, review your lead-generating practices. Meet with your sales team and seek out their feedback. Is the issue that they are not getting enough leads? If not, perhaps they need to refine their outreach practices.

8.   Win Rate

Win rate is a great KPI that can be used to hold your sales staff accountable. In order to calculate win rate, divide deals closed by the total number of proposals sent. 

Much like the proposals sent metric, the higher the better is not necessarily what you’re aiming for. If your rate is over 90%, then your services may be priced too low. You do not want to sell your business short and hinder profitability. Increasing your rates slightly may reduce the win rate, but it will lead to higher revenue in total.

On the other hand, win rates below 50% are a sure sign that something is awry with your sales practices. Once a high-quality lead is identified, your sales team should be able to close a good number of the deals they present. An ideal win rate is approximately 70%.

9.   Net Margin

Unlike win rate, some business financial metrics are a bit more difficult to calculate. Net margin is a prime example. However, it is an important KPI to track.

Net margins translate your revenue to actual profits. In order to calculate this figure, you must have a firm grasp on CAC and COGS. Unhealthy net margins can prevent you from scaling your business.

10.  Cash Flow from Operations

Your business must maintain a positive cash flow to meet deadlines, hire new staff, and grow. Firms without strong cash flow are not flexible, which can hinder performance.

An important part of managing cash flow includes deciding when you are going to charge clients. If you take on a large number of new accounts and do not charge anything upfront, your firm may quickly have a cash flow deficit. 

11.  Client Retention Rate

Acquiring new clients is costly. Retaining existing customers is much more efficient and practical. If your client retention rate is low, then it is time to find out why.

In order to calculate client retention rate, subtract the number of clients at the end of a period from the number of clients obtained during the same period. This will yield the number of starting clients. Next, multiply that figure by 100. This will be your client retention rate.

12.  Average Churn Rate

The churn rate is also referred to as the rate of attrition. Professional service firms use this metric to determine how many clients cancel services during a given period of time. 

A high churn rate may be a sign that your sales team is closing deals with clients that are a poor fit for your company.

13.  Revenue per User (RPU)

RPU is one of the best business financial metrics for professional service businesses. As the name implies, RPU indicates the amount of income generated on a per-client basis. 

You can utilise this metric to project future profits as you scale your business. You can also make decisions about possible pricing adjustments to ensure net margins are sustainable.

Closing

By incorporating these KPIs into your online bookkeeping services, you will be able to more effectively track the financial health of your firm. You will gain key insights into what your team is doing well. Your management team will understand how to improve the client experience and generate additional profit.

If you want to optimise your ability to leverage these metrics, consider bookkeeping for professional services from Visory. Our experts can supercharge your financial back office and give you the tools needed to grow your business! Contact us to learn more about customised online bookkeeping for professional services.

10 Key Financial Metrics and KPIs for eCommerce Business Owners

/in , , /by

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!