In a company, it is very important to manage by ratio to ensure its profitability.
When managing a company, it is important to manage it well if we want to ensure its profitability and prosperity.
Ratio management is a very good way to do this. This means managing each expense item in relation to an established annual sales ratio.
For example, if you have an annual sales of $1,000,000 and allocate 10% of your office salaries, they should not exceed the annual threshold of $100,000.
This form of management allows you to know the cost of your expenses according to the variation in your annual sales. By obtaining this information, you can make the right management decisions and effectively control your labour and purchasing costs.
To make an accurate analysis, you must first establish the key expense items of your company. You must group each major expense item together and isolate them.
Once you have done this exercise, you must properly classify your daily expenses into the positions you have assigned to them. This will allow you to accurately analyze your company’s expenses. If you want it to be really effective and to be able to adapt quickly, you need to analyze your financial statements on a monthly basis.
Ratio management also makes it possible to make a precise budget at the beginning of each year. With your history, it is easy to know the ratios of each expense item. By using the budgeted annual sales, the ratios will therefore adjust automatically and you will then be able to know what expenses you can afford and control their costs.
Management by ratio is therefore a good way to manage expenses according to the variation in your annual sales and it will allow you to make the right decisions.
If you have a new project and would like to have advice in this regard, do not hesitate to contact us. We often assist our clients in their business start-up process, even if it is not related to construction !