START UP: Building Your Business Knowledge With Northwestern Bank
understanding your financials is crucial to your business success
When starting a business, it’s not only important to be well-versed in your product and marketing plan, but also your financials. Understanding how to properly utilize your financial documents can help you make informed decisions and comprehend what your business needs. This can start somewhere you may not expect: with your business banker.
Business bankers have larger roles than just lending funds. “Many times we meet with entrepreneurs who are passionate and knowledgeable about their product or service but need someone to teach them the ins and outs of their financial reports,” said Tracey Smiskey, Northwestern Bank Market President of Eau Claire. “YouTubers can’t walk you through your specific financials. Your banker can.”
Jamie Wilcox, owner of EC Acupuncture, has been working with Tracey Smiskey at Northwestern Bank since opening her business in 2020. Wilcox has experienced first-hand how important business banking is when starting your business, especially when it comes to asking the harder financial questions.
“YouTubers can’t walk you through your specific financials. Your banker can.”
“Tracey and her team set aside time to meet with me in person, getting to know me and my business. After our initial discussion, they offered suggestions on how they could best support me and what I would need moving forward,” Wilcox said. “They have made the entire experience so smooth and are always available for my questions, whether it’s a referral to another type of business, questions on a financial product, or help logging into the banking app. I consider the Northwestern Bank team a part of my support system over the last three years.”
Even if you have an accountant, as the business owner, it’s important to be able to independently interpret your balance sheet, profit and loss report, gross and net profit margins. A simple first step to grasping your business financials is to make sure you’re able to read and understand your documents. Here are a couple of the basics you should be aware of:
THE BALANCE SHEET
Your business balance sheet is crucial for understanding your financial situation at any point in your business. It will show your assets and liabilities, which can help you assess the areas where you can lower your costs. You can look at accounts receivable in your inventory which helps gauge your inventory and how much product needs to be moved.
THE PROFIT & LOSS REPORT (a.k.a INCOME/EXPENSE REPORT)
The profit and loss report shows your gross sales along with your total expenses, resulting in your net income. It’s important to evaluate these quarterly, so you can determine whether you are making a profit. This could mean reevaluating and adjusting product pricing or expense costs.
GROSS PROFIT MARGIN
Your company’s gross profit margin (GPM) essentially indicates how well your company turns sales into profit after accounting for the direct costs associated with doing business. Your gross profit margin (GPM) is considered healthy if it’s between 50-70%.
NET PROFIT MARGIN
Your net profit margin (NPM) is what remains after subtracting both the cost of goods sold (COGS) and operating expenses from your business revenue. This varies widely within different industries, but having an NPM between 30-40% usually means you have a flourishing business. The higher your NPM, the more your company will be able to generate profit.
Educating yourself about your business financials doesn’t need to be a daunting task. Your business banker at Northwestern Bank is passionate about helping entrepreneurs understand their financials. “Business banking is more than lending, it’s about teaching and empowering entrepreneurs with options so their business can thrive and benefit the community as a whole,” said Smiskey.
Northwestern Bank is a local, community bank in western Wisconsin with a mission to build stronger communities where people matter.
Northwestern Bank
Learn more about Northwestern Bank by going to northwesternbank.com or by visiting one of their seven branch locations.
