Having a solid and effective business strategy can be vital to a company’s success, including obtaining and sustaining a competitive advantage with its competitors. Developing an effective business strategy can be difficult in the ever-changing business environment that we live in. Customers’ needs and expectations change over time, as well as market trends, supply & demand, and the economy itself. How can a company keep track of all these changes and adjust their business strategy to compete? There are many factors to consider, but something that should always be considered is the financial data.
The financial results of a company can tell them more than just whether they are taking a profit or loss. A good place to review this information is on a company’s income statement, which shows all the revenues and expenses of the company over a certain period. The reviewer can pinpoint areas where they see great success or areas that are not performing as well. Take an auto shop for example. They may see that their revenue in service repairs is far greater than their revenue from products they sell, but the cost of obtaining and maintaining those products is greater than the cost of providing service repairs. The auto shop, in this scenario, may determine to adjust their business strategy to mainly focus on the service repairs revenue line.
With needs, expectations, and trends constantly changing, it is always wise to view this financial data alongside previous period data to help pinpoint fluctuations in performance. What was successful five years ago may not be successful now, and vice versa. Using year-over-year (YOY) financial reports is a popular way of catching this. If performance in a certain area worsens over time, it might be time to consider ways to improve that area or remove it all together.
Contact our team today with any questions or for more insight on how you can leverage your numbers to create your business strategy.
This article was written by Matthew Ashby. Matthew is a Senior Accounting Specialist with Baldwin CPAs. For more information on the support Baldwin CPAs can provide you, contact matthew.ashby@baldwincpas.com.