to talk about the business of real estate photography. We had a great conversation and during my time with Barry, I got a glimpse of the wealth of knowledge he has when it comes to starting, managing, and growing a small business. We talk a lot about gear and photo technique on PFRE but we don't spend enough time discussing the business of real estate photography so I approached Barry to see if he would be willing to chime in once in a while and share some thoughts on how we as real estate photographers can keep our businesses on track. He was kind enough to oblige, and today he is talking about the importance of reviewing your financial statements.
Author: Barry Moltz
Get over your fear of the numbers. You may think you know your finances in your head; you don’t. You can never formulate a strategy to grow your company if you don’t know the past financial results. It’s essential every small business owner knows how to read a financial statement. Here is where to start:
Profit and loss statement: Shows the revenue, expenses, and profit of a business over a period of time. The basic components include:
Balance sheet: Learn to read one. This is the book value of your business at any given point in time. It also measures the ability of a company to pay its debts. Following are the basic components:
There are many good resources available to learn how to read financial statements. Get help from your CPA or educate yourself online. Remember, accountants are advisors, not adversaries. Review your financial statements on a monthly basis. Performing this task will help you gauge the health of your business. Here are three other measurements that help you find important information about your business:
1—The quick ratio (or the acid test) on the balance sheet: This is the business’s current amount of assets (cash, cash equivalents, accounts receivables) divided by current liabilities. A favored metric of banks, the quick ratio is a measure of the financial stability of a business. In most industries, the quick ratio should be greater than 1. It shows the company has more cash available than current money it owes. When the ratio goes below 1, it means your business may not be able to meet its financial commitments.
2—The business’s sales-close ratio in your customer relationship management system (CRM): Of all the proposals your business sends, how many do you win? This is a key number since it should not be too low or too high. If it is too high, either your business is not talking to enough prospects or your prices are too low. If it is too low, you may not be qualifying your prospects enough before preparing proposals for them.
3—Your 10 most important customers: This is not just measured by revenue, but also by referrals, additional products they buy, feedback they give, retention, or their superior power.