• Erin Elizabeth Martin

The Importance of Relevant and Reliable Financial Information in Maximizing Profits

Updated: Apr 25, 2018

Whether you are a sole proprietor or a publicly traded company the golden rule of business remains the same – to maximize profits. There are three basic ways to do this:

  1. maximize revenue

  2. minimize expenses or

  3. a combination of both

The maximization of revenue is driven by effective marketing, product/service design, customer relationship management and price, while the minimization of expenses is driven by product/service design and vendor relationship management.

How well a business does at maximizing profits is dependent upon the decisions of business owners, and the best way for a business owner to make good decisions is by having reliable and relevant financial information at their disposal. That is why it is so important that the company's financial information is organized and up-to-date. For example, with organized financial information you can analyze the net income for an individual service/product over a specified period of time to determine if it is profitable, if changes need to be made, or the product/service discontinued.

Additionally, there are management measures that can be derived from a company's financial information that are important resources for making good decisions that positively impact profitability. For example, the return on assets (ROA) ratio (net income divided by average total assets), tells you how efficiently the business is using its resources/assets to generate profit over a period of time. The business owner can compare this measure against the industry standard to determine overall efficiency and make adjustments if necessary. They can also measure again in a subsequent period, and compare to see if decisions made resulted in a higher return on assets.

Many factors go into making good business decisions that maximize profits and one of the most important resources business owners can use in making those decisions is reliable and relevant financial information. Contact us today to find out how we can help you improve your business' financial information and maximize your profits.

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