Every business owner wants to succeed. You want to make as much profit as possible through the products and services that you offer. In addition, you may also be looking to one day grow and expand your company. Another major factor to determine is your profitability.
Determining your business profitability can allow you to see how sustainable your operations are and spot new opportunities. This can help guarantee long-term survival even during periods of low sales or business disruptions. Getting a business profitability analysis will give you a better snapshot regarding the health and stability of your business operations.
What Is Used to Perform a Business Profitability Analysis?
While looking at the business bank account can help you determine what revenue flows into the business, it doesn’t provide a clear understanding regarding net losses, operating margins or return on assets. This type of information can be determined from an income statement report.
An income statement is a report that gathers financial information from every aspect of your operations. Also called a profit and loss statement, it will list the financial performance of the business over a specific period of time so that you can develop a profitability ratio. Things that you will find on an income statement are the primary operating revenues and expenses that are made during main business activities as well as the non-operating revenues and expenses that are not a part of the business’ primary operations. Specific items found on an income statement include, but are not limited to:
- Sales revenue earned
- Gross revenue
- Selling, general and administrative expenses (SG&A)
- Operating profit
- Depreciation expenses
- Taxes
- Interest
Once all the financial information is gathered, several different business profitability ratios can be created. These ratios can be used to determine the areas of operations that are highly efficient and meet your business goals. In addition, you can find areas in your business that could use improvement.
Tracking Business Profitability Over the Long Term
Once you get a business profitability analysis, you can use the information to track your operations during the beginning of your operations to see if you are making the forecasted profits. Once you become a seasoned business owner, you can begin using the business profitability analysis to determine consistent profit growth. Getting a business profitability analysis is also beneficial because you can use the information when it comes time to expand operations or when you are looking at new business opportunities so that you can make sure your business profits are stable and growing to handle the coming changes.
Determine profit, expenses and operational trends by obtaining a business profitability analysis. A qualified CPA can help you gather the important financial information that is needed to create the profitability ratios.