8700 Old Harford Road Baltimore, Md 21234
Main (410) 882-0032
Fax (410) 882-1877
Maryland Firm Lic. Reg. Cert. # 33161
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James T. Wells CPA, LLC
Certified Public Accountant
Page updated May 29, 2005
Profitability Analysis
As a business owner, you should be receiving timely financial information in order to run your business. Without this information, you are running in the dark. The information you should be receiving, or be able to construct yourself, at a minimum should consist of a balance sheet and an income statement. These two reports tell you where you are, and how you got there. Only with proper understanding and analysis of these statements, can strategic planning take place. Information such as breakeven, working capital, accounts receivable turnover, cash position and planning etc. can only take place if these fundamental reports are in place.
We are somewhat different from many accountants in that we believe the true value we bring is not in the construction of financial information, but working with management, to diagnose what is happening in the business and then to help them make changes that ultimately will result in greater profitability. And in many cases, internal reports are incorrectly prepared. A program can be designed to aid management in utilizing their financial information better. It has been our experience, that companies that place importance on financial reporting, have a greater likelihood of long term profitability improvement. Can you afford not to have the information?? Please call to discuss further.
WHERE IS THE CASH?
As a business owner, are you reflecting net income on your income statements year end and year out, but always have problems paying your bills? Are you constantly borrowing money to maintain liquidity? Is the debt in your company increasing?
If you answered yes to any of these questions, a hard look at what is really going on in your business is in order. The situations described above could be symptoms of poor accounts receivable collection policies or over stocked inventory, to mention a few possibilities. The bottom line is your company will need to generate positive cash flow from its operations, otherwise you will need to continue to borrow the necessary funds.
To improve cash flow, steps may be needed to decrease the time required to collect accounts receivable, increase sales, carry less in inventory, reduce unnecessary expenses, and improve productivity. Another option would be to increase the time you pay your accounts payable, but I hesitate to suggest this since it could impact your relationship with needed suppliers.
If you are experiencing cash flow problems, a proper analysis of your financial statements and management inquiries will reveal the problems. Once the problem areas are identified, steps can be developed to improve the cash flow of your business. If you would like an analysis, please contact me......JAY WELLS, CPA (410)882-0032
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