Understanding Your Company's Health through Club Financials
If you find yourself with more questions than answers after going through all your club financials, you are not alone. Many people have trouble understanding what the numbers on their club financials mean.
The bad news is that club financials are not going to become any simpler to understand. With standards that need to be kept and applied when creating financial statements, these statements, to a non-accountant, can look like nothing more than a jumble of numbers. Fortunately, with a little bit of researching and practice, these numbers can make a bit more sense to you.
If you want to understand your organisation's health through its financials, here is a guide on to help:
1. Current Asset Ratio
The current asset ratio shows you the value of assets you have against how much current liabilities you are dealing with. It indicates how easily your club can trade assets into cash and cover all of its liabilities. This means that when calculating the current asset ratio calculation, you want at least one or more. For example, a ratio of 1.2 means that you have $1.2 worth of assets for every $1 of liability. Any lower than one means that your club will have trouble covering liabilities, which is a problem.
2. Gross Profit Margin
The gross profit margin is calculated by deducting your total sales by the cost of selling those products and dividing it with revenue. While a single computation will not mean much, a series of gross profit margins from different times can show you a trend.
If you find that the trend is going up, it means that your revenues are growing more than costs. On the other hand, if the trend is dropping, it means that cost is overtaking revenue. Either way, calculating the gross profit margin is essential to show just how well your club is doing, allowing you to take action to reduce costs if necessary.
3. Wages-to-Sale Ratio
Wages are one of the most significant expenses you will deal with when running a club. The wages-to-sale ratio shows you whether or not the cost of salaries is overtaking the revenue.
Generally, you will want a ratio of about ten to thirty per cent. Any higher than that is a cause for concern. It might be because your club is overstaffed or that the wages are rising too quickly. Regardless, the wages-to-sale ratio will help you understand your staffing needs and discover the changes that you need to make to improve it.
Besides these ratios and numbers you need to calculate, there are others you can also look at. For example, if your club has any debt, you will be given a set of requirements (known as the loan requirements) to be able to opt for a loan.
Having said that, the proper calculation and understanding of your club's finances are imperative in helping you determine the current financial health of your business. The numbers you get will dictate your course of action, and hopefully, those actions move your club in the right direction!
New Wave provides business accounting and bookkeeping services to help small companies grow. If you are looking for the best accountants at Gold Coast to take control of your club financials, work with us today!