Assessing Your Company’s Financial Performance Ahead of Tax Season
With tax season hot on our heels, many business owners are turning to their accountants for a better look at their financial performance. We all want to see how we are doing before paying our taxes (after all, profits must be made for taxes to be paid), but this is a great time to go over what your goals were in the last year and take your current performance goals into consideration. Most performance results start with a simple process—but first you must have an expectation. You can determine nothing without a good benchmark. For some business owners that can be a budget, a competitor, or an industry average. But, the context of your performance depends on the benchmark, which is why it’s important that you understand what different benchmarks mean to your company’s bottom line.
Comparing your results to a previous year will tell you how you have grown as an organization. An increase in sales, or profit, would be a positive for your business.
Comparing your results to your budget will tell you how you beat, or fell short of your expectations for the year. Comparing your actuals to your expectations is a good practice for business owners because it will help you make sense of and redefine your goals moving forward.
Comparing your results to industry averages, including industry growth rates, will help you determine whether you are performing well compared to competitors in your marketplace. For example, if your industry increased its sales but you didn’t, that might show that you’ve lost market share.
Another great tool for measuring performance is a variance analysis, which acts as a way of measuring your productivity and profitability relative to those benchmarks. A variance analysis looks at the difference between actual and planned profit. For example, if your goal was to reach $10,000 in sales, but your actual sales totaled $8,000, your variance analysis would yield a difference of $2,000. By looking at these numbers month over month, you’ll be able to visualize fluctuations in your business and account for them.
Making sense of your performance is all about visualizing how successful your projects were. As accountants, we can help you understand where your results came from and help you plan for the next period of growth.
If you need help making sense of your numbers, give us a call and let’s get to work: 289-466-5210.