Entrepreneurs and managers need to have extensive knowledge about indicators that are useful to evaluate their businesses’ performance. Among this knowledge, knowing how to calculate the shareholders’ equity stands out.
Based on these data, it is possible to check important information, such as an organization’s ability to honor its commitments. Indicators also allow comparisons to be made between two or more companies in the same industry, which makes it possible to identify the most productive among them.
Therefore, it is not an exaggeration to say that it is essential for managers and entrepreneurs to know how to obtain the shareholders’ equity of their companies. Keep reading and find out how to do this calculation!
Everything your company owns is an asset, right? Informatics equipment, vehicle fleet, bank account balance, financial investments, real estate, etc. If for any reason you decide to close down your business, could the assets of your company pay its debts? The calculation of the shareholders’ equity gives us that answer.
Logically, no business has the goal of ending its activities. Every enterprise works by acquiring debts that stimulate its activities, generating assets that pay for such debts. Even so, it is very important to know the result of this calculation, since the shareholders’ equity is an indicator of the company’s financial health.
A negative shareholders’ equity can suggest to the partners that this is not the right time for the company to make investments, for example – instead, the priority for that period is to invest in strategies aimed at saving resources.
The shareholders’ equity is the result of the following calculation: assets – liabilities. The assets are on the left side of the balance sheet, representing all the rights that the company has to receive.
To the right of the balance sheet are the liabilities, which reveal the amounts of debts and obligations of the company. This calculation includes several amounts, such as employee payroll, financing operations, loans, suppliers, etc.
A balance sheet showing the amount of $ 100,000 as shareholders’ equity indicates that, if the company were to close down at that moment, the entrepreneur would pay all debts and still go out of business with that amount.
Since the shareholders’ equity indicates the company’s financial health, it is among the factors that influence banks to grant, or not, loans to the business. This would be one more reason to focus on a positive result; after all, the company may lose access to the credit lines if the shareholders’ equity result is too negative. This can jeopardize your growth.
Suppliers can also rethink the partnership if the balance sheet indicates that the company has already incurred many debts. It is not a rule, but it is possible. Accountants cite this calculation as one of the crucial analysis information when reading a balance sheet.
The best way to accurately observe information on any area of a company is to have access to its financial statements. The same rule applies to shareholders’ equity. It is possible to check your transactions through a Statement of Changes in Shareholders’ Equity, also known as SCSE.
The SCSE is nothing more than a report prepared based on all the changes made in the shareholders’ equity of a company in a predetermined period of time.
The purpose of the report is to provide secure information regarding the company’s financial health to the manager. Based on them, they can check what measures should be adopted in the next fiscal year, and even assess if there is any emergency action. Due to this agility, problems can be identified and solved more easily.
Considering the importance of the financial statement, it is essential to carefully prepare it so that it can clearly express all the capital inflows and outflows in the company’s cash.
Given that the statement of changes in shareholders’ equity aims to measure all the financial changes it goes through, some information should not be overlooked at the time of its preparation. Among these we can mention:
Just as important as knowing how to calculate a company’s shareholders’ equity is to have the knowledge needed to evaluate it, and from that, check whether the company in question has had a satisfactory performance. To this end, using ROE (Return on Equity) is recommended to make an effective verification. Learn about it!
ROE is a methodology created with the purpose of measuring the profitability of companies, based on their shareholders’ equity. The idea behind it is simple: it boils down to the premise that, the lower the capital used by a business to make a profit, the more efficient it is.
Therefore, based on the ROE, it is possible to put two or more companies side by side and, using the method, define which has the best return on equity. It is also useful for managers to assess whether their organizations are indeed profitable.
The calculation of Return on Equity is simple; it calculates the company’s net income in its last fiscal year and divides it by the shareholders’ equity accumulated in the same period. These data can be verified in the institution’s balance sheet or calculated taking into account the average of its last 12 months.
Although the efficiency of ROE is evident, it should not be the only indicator used by entrepreneurs or managers when assessing the company they manage. Using other methods and systems is critical to have a realistic overview of the business.
In addition, using the methodology to compare companies that operate in different fields can affect the accuracy with which the data are presented. This is because, given that these companies operate in different areas, they will have different expenses and results, which means that they cannot be assessed with the same metrics.
By evaluating the shareholders’ equity of a company, the manager has access to a powerful indicator of its financial situation. If the information is incorrect or misinterpreted, the organization in question will face problems and may even go bankrupt.
Taking into account the importance of this data, and the weight it has on the financial health of companies and institutions, it is obvious that it must be observed with great care and attention.
Understanding rectifying accounts is as important as knowing how to calculate the shareholders’ equity. They are essential for shareholders to have access to the correct data of a business, such as gross profit.
Basically, they are a group of accounts used to adjust the balance of the same group of accounts in the balance sheet. Therefore, at this point, it is important to know how to calculate shareholders’ equity. These accounts can be inserted in both liabilities and assets, or even directly in the organization’s equity.
Rectifying accounts are also commonly referred to as reducing accounts. This is because they affect the balance of the group in which they are inserted, decreasing it. As a result, when the amount in this account increases, the total amount of where it is grouped decreases. Next, learn about the most recurring reducing accounts.
This account model is among the current asset rectifying accounts. It refers to default, which is very common in sales paid in installments. In this sense, the ADA was created with the goal of including this amount, which represents a costly loss to the company’s results.
Thus, it is opposed to the field of accounts receivable and, based on its sum, it is possible to generate the net balance of current assets.
This account is among a company’s fixed assets. Basically, its role is to calculate the loss of value of a good, resulting from wear and tear, normal obsolescence or nature’s action. It usually includes real estate and machinery.
Therefore, depreciation is the record of the organization’s loss of materials. It occurs only in the assets classified in property, plant and equipment and in the income assets in the investment or non-current asset groups.
In order to understand how to calculate the shareholders’ equity, it is important to know the asset reducing accounts. Among them are the capital to be paid in and the duplicate discounted.
The former includes the amounts that will be paid by the company’s partners to the organization itself. The latter – which is a liability reducing account – has a credit balance. As a result, the amount of the duplicate paid by the debtor will be included in the balance of the business. Thus, its increase decreases the enterprise’s expense accounts.
This adjustment is part of the group of accounts that make up the shareholders’ equity. Therefore, it is essential to understand it in order to know how to calculate your company’s shareholders’ equity. This adjustment relates to the result of the valuation of the assets compared to their fair value.
Its purpose is to ensure that the fair value stipulation can occur in such a way that the elements that drive the settlement of the transaction do not interfere with the value’s final result.
Therefore, the Equity Valuation Adjustments are the results of the decrease or increase of the components of the asset, or the liability – which were not added to the calculation of the fiscal year due to revaluation.
Once you understand how to calculate and monitor the shareholders’ equity, what the rectifying accounts are and how equity valuation adjustments work, it is possible to use your results to measure your business’s financial health. That way, you ensure a secure financial future, as this calculation shows the real situation of a company. In addition, it is very useful for planning future investments.
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These days we know that employees make a great competitive difference for any business. That’s why one has to keep them engaged, informed and committed to the company’s results. Endomarketing plays a crucial role in this process.
Thinking of this, we’ve created this content for you. Keep reading to understand endomarketing, its advantages and how a company can apply it efficiently. Enjoy your reading!
What is endomarketing?
Marketing has always been synonymous with activities focused on end clients and seeking to engage buying decisions and loyalty. But this has changed, and it’s more and more common to see companies implementing marketing with an internal focus.
Endomarketing is the best example of this. In rough terms, it’s a group of marketing strategies that focus on a company’s internal environment, especially its employees. Its objective is to make people generate results.
Main associated advantages
A successful internal marketing strategy, as it is also known, benefits a company in a variety of ways on all levels and in all areas. In this way it’s possible to construct a solid and prosperous business that’s attractive to investors. Take a look at its advantages:
Endomarketing can be translated as activities that involve incentives (awards) or even activities that appreciate employees. An example of this is Fiat’s program. The company’s employees are always the first to take test drives of new models. It costs the company nothing, but it makes all the difference!
How can you implement this in your company?
It’s not always easy to create an endomarketing activity, and that’s why many people seek help from specialists in this area. However there are a few steps that can be taken to facilitate this process. Take a look:
First, it’s important to know your company’s current employees. Try to understand their needs, talk with them and pay attention to their main complaints. This way you’ll be able to create a new creative activity that will offer real results for your organization.
Like everything in life, endomarketing strategy should be developed with a clear goal in mind. This way, it’ll be easier to channel creativity and achieve your objectives. Among the main goals we can highlight:
The third step is the moment when you structure the plan that will guide your entire strategy. To do this, you need to answer three main questions: what will be done? why will it be done? and how will it be done? Take a look at some tools you can use:
Finally, it’s important to follow the results you achieve. That’s why you need to establish a few key performance indicators. These indicators function like a thermometer, measuring an activity’s results. Here are a few main indicators:
By applying these tips, you’ll be able to design your internal marketing strategy and obtain great results, keeping your employees happy and motivated.
Now that you are up on this subject and understand endomarketing, take this opportunity to keep up with other subjects. Sign up for our newsletter and receive new content directly in your email. Let’s get started!
A company’s patrimony goes far beyond its results and its profitability. Its assets include, for example, machinery, real estate, investments, etc. All of this can be transformed into capital, which can help your company invest or pay creditors. Knowing this, it’s very important for a business leader to know how to calculate the liquidity ratio for each of your company’s investments.
This article will explain more about this topic, which is fundamental to the financial health of any company. Let’s get started?
What after all is a liquidity ratio?
It’s a financial indicator that shows how many resources a company has. This makes it possible to understand how much debt your business can withstand. Every investment has a different degree of liquidity. A building, for example, has low liquidity, or in other words, it isn’t possible to transform it into capital quickly.
In order to calculate a liquidity ratio, a business leader needs to consult the sum of a company’s resources. This way it’ll be clear whether the company has enough assets to honor its obligations. A company can perceive that it doesn’t have enough solvency to expand its operations, for example.
The greater a company’s liquidity, the greater it’s financial health. For example: if the result is greater than 1, this means that the business has a good capital margin, and can pay its debts without compromising its investments.
If the result is very close to 1, this means that the company has just enough to honor its debts, and will not have any resources left over after eliminating them.
If the result is zero — or lower— this means that the company doesn’t have enough to pay its creditors. This is a preoccupying situation.
How do you calculate the different types of liquidity ratios?
There are basically 4 types of liquidity ratios; here we will explain how you can calculate them. Continue below!
Current ratio
The current ratio focuses on the short term. That’s why to calculate it you need to consult the company’s current assets and its immediate financial obligations.
The formula is as follows: current assets / current liabilities.
Quick liquidity ratio
With an even greater focus on the short term, the quick liquidity ratio excludes your product inventory, because this calculation just considers the resources that your company already possesses. The quick liquidity ratio is therefore lower than the current liquidity ratio.
Its formula is: (current assets – inventory) / current liabilities
Cash asset liquidity ratio
Unlike the other liquidity ratios that we’ve cited, this calculation doesn’t take into account current assets, but just the financial resources that the company already has, or in other words: the company’s bank balance, cash and financial investments with immediate liquidity.
We calculate it by using the following formula: available assets / current liabilities
Caution must be used to analyze this index. Having more money in your bank account than your current liabilities is not always a positive thing. Depending on external factors such as inflation, these resources can lose their value.
Overall liquidity ratio
With a focus on the long term, the overall liquidity ratio takes into account the resources that the company already has, as well as those that will come. The same is done for the liabilities. The data necessary to calculate this index is found in the balance of your company’s patrimony.
Calculating it is simple: (current assets + long-term assets) / (current liabilities + long-term liabilities).
As we have seen in previous topics, liquidity ratios are extremely useful tools to understand if the enterprise has sufficient resources. However, attention must be paid when monitoring them so as not to make mistakes.
In addition to knowing what they are and how to calculate them, you must understand well the methods behind this type of evaluation. In many cases, the financial department is responsible for doing this initial analysis of the ratios. It will also create the financial reports that will help complement the monitoring.
What is important at this time is to group this information with the data taken from the ratios, always focusing, of course, on the indicators that are related to the company’s current goal. For example, if it is a short-term goal, current liquidity ratio, if long term, overall liquidity ratio.
Thus, with the data grouped and organized, it is time to make comparisons with old information and with established goals. Here is the chance to assess whether the company is better than before or if it has achieved its growth goals.
An important point of this monitoring is that the more automated the process, the better. Using management software is the most appropriate alternative if the goal is to make this monitoring mechanism more intuitive and practical, including in data collection and comparison of indicator results.
In general, business management software, including indicator management, can bring several benefits to the company. In this topic, we list the three main ones.
Imagine a company that has a considerably great pace of inputs and outputs. Now think that the monitoring of its finances is done only by employees, without any technology.
It is undeniable that there is a great probability of errors occurring in the collection and analysis of information. It is also an activity that will take up unnecessary time that could be used for another activity.
With management software, in addition to the time optimization, as everything is done in a programmed way, the possibility of errors is null. After all, the efficiency in collecting and monitoring data is done in an automated way, saving employees’ energy and directing them to pay attention to what really matters.
For a company that does not have software to aid in its financial management, the cost of taking care of its management while also monitoring its behavior is very high. This is because it will need to hire more manpower to manage and collect data, in addition to dealing with employees.
However, by acquiring software, in addition to automating this process, there is a reduction of expenses, since it is no longer necessary to hire people. After all, it will do all the activities quickly and efficiently.
By acquiring management software, the company will have access to different data. As we explained earlier, it will be crucial for the correct collection and management of this information.
That way, it is possible to be aware of how the business behaves and to understand what needs to change for the enterprise to improve, knowing exactly what are the strengths and weaknesses of company’s strategies.
Well, this article has tried to shed light upon what the liquidity ratios are and how you can monitor and calculate them. Do you want to keep learning with our exclusive content? Then subscribe now to our newsletter!
Choosing cost management software is an important investment for any company given the various advantages that access to this technology can provide to your organization, such as better information access and analysis.
However, you need to devote some time to deciding which company is best prepared to meet your needs. Should you try a spreadsheet implementation? Should you customize an ERP? Can BI help you tackle this? In this post we’ll suggest a few questions that businessmen should ask before choosing cost management software.
Implementing a Cost Management and Profitability solution requires full-time dedication to this subject. The supplier should be a company that’s 100% dedicated to dealing with all the individual complexity that an implementation of this type requires. All of the services should be executed by the company’s own team and not by partners who may not have the necessary commitment to a successful implementation.
The company should also have proven international experience in specific cost management and profitability projects with companies of all shapes and sizes – which benefits interested buyers because implementation time should thus be diminished at the same time as the quality of the modeling should be enhanced.
Here it’s important to know the business consulting companies that create the conceptual modeling for these solutions. These companies possess valuable know-how in terms of international best practices for the implementation of cost models ranging from the most simple to the most complex and won’t risk recommending a solution that’s not the best.
The solution should have received a positive evaluation from a formal market publication published by a renowned institution (Gartner, IDC…), a Big 4 Consulting Firm (Deloitte, KPMG, PwC and EY), Accenture or a large independent consulting firm.
The solution should be installable in local environments like notebooks that facilitate the prototyping of cost models in an independent manner so that they can be later uploaded to a production environment or scalable hardware with very sophisticated infrastructure. It obviously should also be possible to run it on a 100% web environment with absolutely no local installation necessary.
The user should have the autonomy to run the model and manage costs and profitability independently of the suppliers; the solution should contain specific functionality for this, facilitating the modeling, analysis and the execution of basic and advanced business simulations – all of this with adequate data security, data access levels and performance.
The solution should permit quick and easy analyses through advanced reports or even dashboards or gauges that can be developed by the user. The more functionality and the better the quality the solution offers, the better your monthly and final work results will be.
No one imagines that it’ll be necessary to type out the account list or do manual work. The data that feeds the cost and profitability model should come from existing systems, whether it’s an ERP, spreadsheets, payroll, BI and/or or any other system responsible for a part of the system’s input data.
The solution should have its own ETL (extract, transform and load) mechanisms that will enable it to transform source table data to a format that the software recognizes, making it even possible to take a critical look at the source table data before importing it. The goal is to gain efficiency and avoid rework.
This is a very common question on the part of managers. Let’s begin with spreadsheets: modeling in Excel can be very simple in principle (and it really is), but it’s natural with the first few times you go through the figures and draw conclusions based on your cost modeling that new needs arise. This isn’t even considering the issue of data security and integrity. According to EY, “it is possible to model using spreadsheets, but only with very simple cost models, and even these simple cost models have severe limitations in terms of extracting data for subsequent management analysis.”
ERPs offer the false impression that “they already contain everything required for a cost model,” but this isn’t true: accounting information, technical specifications, revenues and volumes are just some of the data needed to begin modeling costs and profitability. Various other types of data such as process and activity data, capacity, indicators, details of administrative costs and specific business rules aren’t found within an ERP, meaning that the system will have to be customized to meet the needs of an efficient cost model. And we all know how complicated, expensive and time consuming it is to customize any ERP. The supplier can even argue that “the cost model already is included in the package ‘for free,’ but it will require many customizations and adaptations that will often take more than a year to complete. Even when this occurs the model may rapidly become obsolete because, as we know, organizations are becoming more and more dynamic with new products and services, departments, cost centers, processes, channels, and clients appearing continually and there may eventually even be mergers and acquisitions. Unfortunately many companies still believe that ERPs can handle this and continue using compromised modeling which no longer reflects neither what’s present in the ERP nor the reality of the company’s operations.
Trying to accomplish costing within a BI is another innocuous challenge. Professor Bala Balachandran of Kellogg always says that “these systems make it possible to extract extremely wrong data in a simple manner.” A BI will always present data that already exists within an organization. It doesn’t transform data or take into consideration the demands of modeling such as reciprocal cost assignments, the prevention of double counting and the understanding of received costs and costs themselves. Modeling basically represents the effort made in transforming data for subsequent presentation/analysis, not the opposite!
Try to find out if other clients are satisfied with the service provided. Never wait until some unforeseen event occurs to find out if the company’s customer service meets your needs.
As we’ve seen in this article, there are many doubts that arise when you’re thinking of acquiring cost management software. If you’re interested in this technology, get in touch with us! It will be our pleasure to clear up any of your doubts!
As markets are becoming more and more competitive, managers need to find ways to make their processes more efficient and achieve better results.
The concept of Lean Six Sigma and the benefits it brings have arisen to help companies in this aspect. Keep reading this post to find out more about this topic!
To better understand what Lean Six Sigma methodology is, first we need to understand the separate concepts of what is Lean and what is Six Sigma:
Lean Six Sigma is a combination of both philosophies which seeks to achieve excellence by optimizing processes and reducing waste. This concept has arisen due to the desire of companies to make their operations more agile and efficient.
Lean Six Sigma can be applied to any company that‘s seeking to maximize its results and make its operations leaner and more precise. However, the first step in doing this is to be aware that you’ll have to break paradigms and you’ll need to be willing to do this.
The change begins with the mapping of your processes. In addition to evaluating your activity flow searching for errors and waste – to eliminate them – you also need to understand how a company creates value for its customers.
When the creation of value is defined, this is when you should identify which steps in each process don’t contribute to this goal and eliminate them, adjusting your work methods so that your operational performance doesn’t suffer.
The focus should be on improving processes and avoiding waste, which can be characterized as:
In general, the goal is to implement this philosophy in your company and create conditions that will ensure that the correct materials are used, in an appropriate place, in an ideal quantity – always avoiding accumulations of material and losses and correcting process failures as they occur.
The adoption of the Lean Six Sigma methodology offers various advantages for your company in terms of production and your overall results. Among these benefits, we can mention:
Applying Lean Six Sigma takes time, but it’s relatively simple and it will bring your company closer to achieving excellence in its activities. In addition, with all the improvements made, it’s safe to say that it will also provide you with a competitive advantage.
In the business world, good opportunities arise from correct decisions. Some need to be taken advantage of quickly, which can cause apprehension on the part of entrepreneurs. The best way to make more efficient choices is to create and analyze KPIs.
KPI stands for key performance indicator. These are metrics that business leaders use to analyze the efficiency of a given process.
For example, a company invests $ 50 thousand in a television commercial. Its objective is to encourage television viewers to visit and register on the company’s website, thereby generating leads. Determining an ideal number of leads to be achieved is a way to create and analyze a KPI in this case.
If the company determines that the number of leads should be 100 thousand and just 20 thousand have been created, this will help the marketing department verify whether the strategy has been successful or not.
One tip in terms of creating and analyzing KPIs is to work with data that’s easy to understand. This data should be easy to collect. Here are some examples of KPIs:
This way the company will have access, in a rapid manner, to data which can easily be understood. This practicality ensures that changes in strategy can be made quickly and safely. If the business has a low number of website views, this reveals that the page is not being successful, and that it should be modified.
The ideal is that a company shouldn’t use too many KPIs because one metric can contradict another. The number of leads may be high, however, sales may be falling, for example. In this case, the company should place emphasis on the result that gives the best idea of how well the venture’s adopted strategy is doing.
Another important point in creating and analyzing KPIs is to remember that these numbers should be understood by all of the company’s departments – normally they shouldn’t be specific to, or the exclusive use of just one department.
In this article we’ve used the example of using KPIs to examine leads or sales. However, they can be used in any other business processes — not just sales or marketing, and can help improve quality and avoid rework, for example.
A good indicator of the quality of your sales department is to analyze the rate of complaints that your customer service department receives, for example. A way to reduce these complaints is to improve your team’s training.
KPIs also help identify the efficiency of investments, serving to determine the ROI.
Normally the answers to your company’s questions are in your business itself. That’s why it’s important to create and analyze KPIs. Don’t ignore your greatest source of information about your venture: your internal process metrics.
Frequently reducing costs ends up becoming a necessity for a manager. However, it’s extremely important to know how to do it, because it will, after all, affect your company’s strategies. Contrary to what many think, reducing costs isn’t something bad and doesn’t always involve laying off employees – and it can, even, serve to stimulate greater efficiency in your company.
Want to know how you can reduce costs without having a negative effect on your company, your employees and your working environment? Then read our tips!
The first step is identifying where your company is wasting resources. Small expenses, considered insignificant, can represent great savings for your company.
Electricity is a good example of this concept. That’s why you should verify the efficiency of the equipment that you use in your company. Exchanging them for more economic models could be a good investment.
Companies need targets, not just to encourage growth, but also to measure the assertiveness of the decisions taken. When entrepreneurs have to decide how to reduce costs, they need to maintain the strategies that have worked in the past, rather than those that have proved to be mistaken.
A good source of information is evaluating the targets that have (or haven’t) been attained. They will provide you with valuable data.
Rework is synonymous with losses. If your company has to do a lot of rework, investigate the cause. In many cases, employees haven’t received adequate training and this is why they can’t perform their jobs well, wasting their work time, and in some cases, raw materials.
Instead of beginning a hiring process — which is normally expensive — look at training your current employees. Besides being less expensive, which will contribute to your cost reductions, this initiative can greatly improve your company’s efficiency.
A good way to discover how to reduce costs is to reevaluate your company’s investments. Many companies have investments that are distant from their area of expertise. In some cases, the rates of return aren’t advantageous and these investments only generate the expenses of maintaining them.
Your company’s investments, besides being safe, should be simple to manage — this way, you’ll save in terms of fees and/or the costs of the professionals responsible for monitoring them.
Besides improving your buying process, meeting with your suppliers can be a way to discover how to reduce costs. In many markets, there’s been an increase in the number of companies that can be considered potential suppliers. Your purchasing department should evaluate the reputation of these companies — as well as delivery logistics and payment timeframes — to know if it’s viable to change a supplier.
The entrepreneur should always be looking for chances to reduce company costs. This attitude normally results in improved company processes and greater financial solidity for your business. It shouldn’t be seen in a negative light, and certainly not associated with layoffs or compromising the quality of your final product.
It’s rather a series of natural and constant advances that can be found in successful companies. It’s necessary for businessmen to keep their business data in an organized and secure form, because this will be fundamental when it comes time to find ways to streamline your company’s processes. Remember: you can’t manage what you can’t measure!
The planning and financial control area of a company is responsible for strategic planning, producing budgets and providing decision making support to company leaders and the managers of other departments. The professional controller is the one who manages and coordinates the work of this department, assuring the quality and results of its work.
Overall the manager of the financial control area is a strategist with managerial responsibilities, because by consolidating data and providing management support, this professional guarantees that all of the business areas are well run and efficient, and that the company’s CEO and executives are taking good care of the organization.
Find out a bit more about the importance of this position in a company’s hierarchy and the advantages that this person can offer to your company’s business.
In the past, the managers of the financial control area were accounting specialists. This has changed, but a professional controller is still an accounting specialist — with knowledge of administration, management and business strategy as well as finance.
With these professional duties and knowledge, this manager simulates scenarios for the accounting department, analyzes its structure and may possibly identify changes that need to be made while keeping up with the department’s progress and making projections for it. Thus, this professional will use diagnostics to evaluate the accounting department and its processes and support the department’s manager in making decisions to optimize it.
One of the duties of a professional controller is evaluating results and also understanding them. This means that, along with measuring and documenting results, this person knows how to define targets, compare budgeted and actual numbers, and will know what has enabled the company to achieve or not achieve its goals, and will also be able to identify the factors and actions that have influenced the obtained metrics.
Through this work, the business will be better able to control its numbers and provide its managers and executives with greater insights. As a consequence, the company will be able to improve its operations, its budgeting, management and its overall and segment strategies and actions.
The company as a whole has its strategic planning and, within thus, budgets and strategies for each department. To help the departments develop these budgets and strategies, the planning and financial control area consolidates information on all of these factors and provides support for the company executives and managers in their decision making.
The results of this process are more agile decisions and more efficient budgets. As a result, the company’s prospects will improve and it will start to invest its financial resources better.
Thus it’s correct to say, for these reasons and countless others, that having a professional controller responsible for the planning and financial control area offers a competitive advantage, because the strategic and managerial improvements and changes that this professional promotes will result in improved company performance in the market.
For example: with leaner but still appropriate budgets, it’s possible to maintain good processes, profit and a positive return on investment and still have money left over to invest in business development to improve market penetration.
Improved financial analysis
Taking into account the company’s capacity to supply strategic data in real time, it becomes easier to perform reliable audits, which will diminish errors and fraud considerably.
This way the company gains credibility with the market, its partners and possible investors. It’s not incorrect to conclude that the work of a controller, when well executed in a strategic manner, can help increase the market value of a business.
In addition, efficient financial control guarantees security for your company when it comes time to make investments and make other strategic financial decisions, such as mergers for example.
Strategic analysis of current actions
In the not too distant past, it was impossible for a company to analyze the actions it was taking while they were being executed. One had to wait for them to finish to conclude whether they were successful or not.
This led to losses when planning was not executed well. However, today with a professional controller this situation can easily be turned around.
The strategic analysis of information makes it possible for this professional to verify when an action is not generating the expected results. In some cases, this can happen during the first moments of execution. Thus a company can interrupt a strategy before it leads to irreversible results.
The data that this action presents will be used for analysis, giving these professionals the chance to study why this error occurred in order to avoid the occurrence of similar errors.
Creation of efficient reports
When well executed, the work of a controller ensures that your company focuses on the correct analysis of information, generating efficient and easily understood reports.
It’s important to emphasize that all of a business’s important decisions should be made based on this type of document. We may conclude that many of the losses that companies have had have been due to erroneous information in problematic reports.
Ensuring the reliability of this information is of key importance to any business. Achieving this level of quality is only possible when the company has a professional working in the control area, because this ensures that there is a strategic analysis of the data through management software which will present really credible reports.
Compliance with regulatory norms
Companies have the responsibility of complying with the requirements of various regulatory committees. Non-compliance with these rules can cause grave damage to a business’s image, and can even put the company’s operations at risk.
To meet these obligations, it’s important to maintain a level of discipline in operations, which is possible only through the strategic vision provided by the constant analysis of data from your operational processes.
This way it’s possible to verify if production processes are in compliance with the parameters required by regulatory agencies. In addition to this, the presence of a professional controller ensures the veracity of the documents presented by the organization, guaranteeing its compliance with norms, because they are generated by the latest software which can attest to its accuracy.
If a company concludes that its processes contain errors, it’s possible to correct them in a rapid manner to meet regulatory demands and avoid recalls or problems with the company’s image.
Now do you understand the importance of a professional controller to a company? Did you like our tips? Then follow us on the social networks and follow our updates. We’re on Facebook, Twitter and Linkdeln!
When it first appeared in the 1980s, Microsoft Excel was a revolutionary program for editing electronic spreadsheets. In fact, Excel is still widely used and is a good solution for maintaining control over various aspects of your finances.
But medium and large sized companies can’t depend on this program’s solutions anymore and have been discovering the advantages of having financial management software, mainly for integrating data to optimize decision making.
In today’s post, you’ll see 5 reasons to migrate from spreadsheets to financial management software. Take a look!
Despite the fact that Microsoft has developed solutions for using Excel on various platforms such as tablets and smartphones, spreadsheets are more functional and easier to use with desktops or laptops.
Financial management software has been developed to work on any platform, which enables you to follow the progress of your company’s finances in real time. Working faster enables you to make decisions faster, which makes your processes more agile and improves your company’s return on investment.
You can use Excel for controlling your personal finances, but for small, medium and large-sized companies, financial management involves thousands of data elements that make electronic spreadsheets unwieldy.
Financial management software doesn’t depend on a system of formulas and all of its programming is performed automatically, which only requires that you adapt it to your company’s reality. This avoids human error and also makes training easier, when necessary.
An Excel spreadsheet needs to be constructed from scratch to work, including the development of formulas and pivot tables. And when a user alters any of these formulas it can ruin the configuration of the entire spreadsheet. Frequently an error will only be perceived during a demonstration of the results to company leaders.
Since it’s already pre-programmed to function according to your company’s needs, financial management software saves time, avoids rework, and as a result, reduces operational costs.
To function in real time, financial management software can be used by various users at the same time, in terms of both entering and accessing data. Microsoft, for example, doesn’t allow two users to access the same Excel file at the same time.
Any mistaken action by an Excel user can invalidate all of a spreadsheet’s data. Financial management software avoids problems like this, because its initial programming enables it to alert the user when there’s been a data entry error.
In addition to this, it’s also possible to configure reminders, which are valuable in the financial area and make teams more efficient.
With the help of technology, you can obtain software that offers a global vision of a company’s entire financial situation with low acquisition and maintenance costs. And the main thing is that any employee in the organization can use it, because its systems are so simple and intuitive.
And what about you? Why haven’t you acquired financial management software for your company? What are you waiting for?
Every entrepreneur seeks to earn money when opening a business. This is obvious. The terms profitability and rate of return and often considered synonymous by entrepreneurs and businessmen. But are they really? The answer is no.
It’s essential that the financial and management areas of a firm have a perfect understanding of the difference between these two concepts so that the entrepreneur will be better able to manage the business.
It’s important to understand that these two concepts mean different things. If you want to learn more about this subject, then continue reading this text and eliminate your doubts once and for all!
A company’s profitability, as the name suggests, has to do with its profit. Or in other words, a venture is considered to be profitable depending on the relationship between its net profit and total revenues.
The basic formula for calculating the profitability of a company is as follows:
Profitability = Net Profit x 100 ÷ Total Revenues
Remember that the net profit is the total profit of a company after you deduct expenses, and total revenues are the total amount of money that the business receives. Profitability is an indicator of operational efficiency, whose result is given in the form of a percentage.
The rate of return, on the other hand, is a business’s capacity to generate revenue. Unlike profit, which deals with the revenue that the business has already generated, this indicator refers to investments in products. In other words, it deals with the capacity of a business to generate profit by investing in a given product.
Thus to discover a product’s rate of return, you need to analyze its previous sales. If the investment in it is less than the revenues from its sales, then it’s considered to have a positive rate of return. And for a venture to have a positive rate of return, it has to have greater revenues than its total fixed costs and other expenses.
This indicator is also given in terms of a percentage. The way to calculate the rate of return of a venture is as follows:
Rate of Return = Net Profit x 100 ÷ Investment
The main problem with the confusion between these two concepts, however, is the fact that profitability and a positive rate of return don’t necessarily go together. Profitable companies don’t always have a positive rate of return and vice-versa.
For example: many people think that a large number of sales automatically implies that the merchandise in question is profitable and has a positive rate of return. And this is a mistake: even though the product may have a positive rate of return, given that it doesn’t spend much time in storage, it won’t necessarily be profitable.
This is because profit takes into account the price of the product. In this case, if the price is below the market price, it’s natural that it will have greater sales than the competitors’ products. However, if this price is well below the ideal price, in contrast to the business expenses, it won’t generate profit for the company. The product will have a positive rate of return, but won’t be profitable.
After reading this, you can see how unquestionably important it is to consider both the profitability and rate of return of your company in order to know where and how to invest. Focusing on just one of these aspects may be fatal to your firm’s budget, and confusing these two concepts may hide serious problems with your business.
