Entrepreneurial Knowledge

Like a smart coach, smart entrepreneurs also take care of their businesses with a series of standards.

Some of these standards are obvious, such as revenue, gross profit margin and inventory value, but there are many other criteria which are not the same (at least not closely watched).

Although you need to run a successful small business, you don't have to be a securities analyst at WallStreet. However, it is of great importance to analyze these figures with ease and ease in daily management and long-term planning.

Cash flow.

Net earnings are good, but cash flow is of real importance.

The former is an abstract accounting measurement standard, while the latter reflects the grim fact of the company's cash flow.

The cash flow statement has a very close relationship with the other two financial statements: profit and loss account (record revenue and expenditure) and balance sheet (record "working capital" account, such as receivables and payable).

For example, suppose your company's revenue is $1000 a month, but all goods are sold on credit (which means you actually didn't receive cash during that time).

Now assume that the total cash expenditure for that month is US $750.

In this case, your profit and loss statement will show a profit of $250 ($1000, total revenue minus $750).

But at the same time, the cash flow was reduced by 750 US dollars.

This is because the company must pay $750 in cash, but it has not received any cash from the customer to offset the cost.

Accounts receivable increased by 1000 US dollars and the balance of accounts was achieved.

The specific criteria to be noted are: cash flow (relative to cash from financing or investment income).

Operating cash flow represents the amount of cash generated by the main business of a company, which is essentially the core of an enterprise.

The calculation formula is: net surplus + depreciation and amortization (all non cash expenses) - capital expenditure (new equipment, etc.) - changes in working capital.

Another important thing about cash flow is that investment bankers usually use this standard to judge your company's value.

Inventory turnover rate.

The longer the inventory stays on the shelf, the lower the rate of return on these assets, and the price of these inventories is also easier to fall.

That's why you want your inventory to flow or "turn around".

In order to calculate the inventory turnover rate, the larger the ratio (or turnover rate) is, the higher the rate of return on your capital will be.

(another calculation method: the cost of pforming the molecule into the product sold and divided by the cost. The calculation method reflects the fact that the inventory value calculated at the initial purchase price will be recorded in your balance sheet, while the revenue is calculated according to the current market value.)

Accounts receivable increased, VS sales increased.

Do not worry about the increase in receivables, as long as the receivables are proportional to sales growth, there is no problem.

If receivables exceed revenue, you do not receive payment, which means that you may not have enough money on hand when you most need cash.

Timely delivery.

There is nothing worse than losing the trust and respect of our customers.

And when you fail to comply with the delivery date, this happens.

The postponement date should be annotated and the reasons for the delay should be investigated.

This may be accidental, but you may find a small loophole in the system again.

Like any other measure, please continue to focus on delivery trends.

The company has not delivered the order.

Sales may be good this week, but what will happen in 90 days?

Pay attention to this future measurement standard, that is, promised orders and forecast sales, and ensure that you will not get into trouble based on the probability weight of these pactions.

Interest repayment.

No matter what the credit environment is, whether your company can always get enough income to repay the interest on loan is something that the credit must know.

There are many ways to define the interest guarantee ratio, but one commonly used method is interest and pre tax profit (EBIT) divided by interest expense.

The bank attaches great importance to this kind of measurement standard, so you should also attach importance to it.

For more details about the management of balance sheet, please look at the most important assets of entrepreneurs.

Every industry (and industry) has its own set of important yardsticks.

Choose the criteria that can measure performance from three aspects of surplus, liabilities and cash flow, and pay close attention to them.

It should be noted that every number has different meanings.

Only by combining all these figures can we embody the basic principles pursued by all smart entrepreneurs: integrity.