Numbers That Matter with Finagraph

As a small business owner you tend to focus on the obvious, questions like “how much money is in the checking account”, or “doesn’t it seem like we have a lot of extra inventory on hand”?  These are the kinds of things you know are important, and yet in some ways the answers seem obvious, but in many other ways you really are not sure if you can even find the answers inside QuickBooks.

Surely QuickBooks will give you a representative total of cash in the bank, but just try to find out if you have too much inventory for your actual needs, QuickBooks simply isn’t going to give you a reliable picture.  At the same time, while you may have an accurate bank balance, do you really think that QuickBooks can ‘project’ an accurate reflection of your cash-flow needs over the next few days, couple of weeks, month, or rest of your fiscal year?  

Well there is that ‘cash flow projector’ thingy inside QuickBooks that almost nobody knows how to use, and even if you did learn how, it still relies upon a lot of supposition to even give you a few numbers. What you need is a reliable, easy to use, data driven resource that can answer the questions you, your accountant, and your banker really need and want.

Well as ‘accounting would have it’, there are certain numbers from your company’s income statement and balance sheet which, when combined properly, can give you much clearer insight into how your company is performing, and far more so than just the raw figures. These combinations take the form of ratios, and most of these ratios are designed to give you clear indicators of how your business is performing, areas needing attention, and things you are doing great on.

Many of these ratios are of interest for different purposes, and also based upon the different responsibilities an individual may have within your company.  While almost everyone involved will have an interest in how the company is performing as measured by its ‘return on assets’, the company’s management will have a keen interest in the ‘operating expense ratio’.  Creditors generally have a special interest in a company’s ‘debt ratio’, while Inventory managers will most likely be interested in the ‘inventory turns ratio.’

The problem if you are a QuickBooks user is that your financial/accounting software, by itself, can provide you with absolutely NONE of these critical measures.  That is what I said, your QuickBooks software cannot provide you with any of these, or other critical measures, and that is where Finagraph comes in, but we will get to that in a few minutes.

Years ago I worked as Technical Editor with a very smart guy by the name of Conrad Carlberg on a book titledBusiness Analysis for QuickBooks” (by Wiley Publishing). Conrad is a leading author on textbooks for Microsoft Excel and the majority of this book covered how to pull data out of QuickBooks (via export as well as the SDK) and manipulate that data within Excel to produce all kinds of business measures that QuickBooks simply doesn’t provide.  Among those measures were the kind of Business Analytics and Datametrics that most ‘big businesses’ consider essential, but most small businesses owners simply don’t know about, understand or begin to have a clue how to prepare. 

I will just tell you that our textbook was NOT a ‘best seller’, in fact I may have purchased more copies myself than otherwise sold in the local bookstore.  The reason, most people using QuickBooks simply don’t believe they need to spend the time or effort to produce analytics for their small businesses.  When they were asked by a lender to provide a ‘debt ratio’ they either “scratched their heads” and ignored the request (thus losing the loan)or they called a local CPA and paid them a few hundred dollars to take their data and compile the numbers for them.

During my involvement in the preparation of Conrad’s books my thinking was that QuickBooks ProAdvisors would now be armed with the necessary knowledge to be able to offer new services in the form of ‘business analyses’ to their clients.  But based upon the sales of the book there are darn few copies of it sitting on the shelves of QuickBooks ProAdvisors, and today I am not sure you can even drag a ‘used copy’ off the Amazon marketplace.

However with textbook in hand, I want to review just a couple of critical business analysis measures, so let’s begin with the “Current Ratio”.  The current ratio is one measure of a company’s ability to meet its short term obligations. By definition the Current Radio is:

 (Current Assets) / (Current Liabilities) = Current Ratio

This measure of liquidity is designed to provide a sense of how well a company is positioned to convert its current assets to cash in order to meet its liabilities.  So if a company has a Current Ratio of 3, it has sufficient assets to pay its liabilities 3 times over from liquid resources.

Of course to produce this ratio you would have to export a current Balance Sheet from QuickBooks into Excel, and then perform the math by dividing the Current Assets Total by the Total Liabilities.  That doesn’t seem like too much work does it? Nope not really! Of course doing that at a moment’s notice, every day, or even every month becomes a bit of a chore, and that is just ‘one measure’ of performance.

So what about ‘the Acid Test’, also known as the Quick Ratio. This is a more conservative measure of the company’s liquidity because it recognizes that not all ‘current assets’ are truly current.  While ‘cash’ is liquid, even some short term investments are not easily liquidated; or if they are, there may be a significant cost of liquidation. While you may have a large number of accounts receivable, just how many of them can you collect ‘today’ if hard pressed? And if you have ‘inventory’ in your business, a substantial ‘current asset’ if there ever was one, it isn’t exactly like you can sell that off ‘overnight’.  No the reality is that not every ‘current asset’ is current at all.

The proper computation of the ‘Quick Ratio’ takes a significant amount of analytics derived from your QuickBooks data.  When you go about performing the manual steps you determine that there is nothing ‘Quick’ in your ‘books’ (data) at all.

So with just these two fundamental business measures in our sights, what can Finagraph do for us? The answer is simple, this product provides “financial intelligence on demand.”  You can, as they advertise, “replace hours of work with 1-click.”  Not only does Finagraph pull the data and perform the computations, displaying the information in a single easy to read dashboard (Figure 2), but it allows you to drill down on each metric.

One element of this drill down is to provide 'easy to understand’ meanings of the various metrics. For example, Finagraph tells you that the ‘meaning’ of the Current Ratio. For example, if it is 4.34 that you have “$4.34 in current assets to pay every $1.00 in current liabilities.” (Figure 3) In the event of a problem ratio, the red flags quickly call your attention to areas needing your attention, and the diagnostics guide you in both interpretation and potential resolution.

Finagraph provide the Datametrics, and also the Analysis.  So in the case of a low current ratio, Finagraph might tell you if your current liabilities are ‘too high’.  It can even recognize if you have potentially posted long-term liabilities inappropriately to short-term liability accounts.

You will also notice (in Figure 4) that Finagraph gives you a comparison of your own numbers with business averages based upon your industry. This is intended to give you a realistic view as to how you are doing in comparison to ‘those other guys’ who have a similar business you compete against.

In the same way I once felt that the textbook I helped create could provide ProAdvisors with a tool to server as a trusted advisor for their clients, I can see Finagraph fulfilling the same role. With the click of a button you can educate your clients with real-time knowledge of their business values, and how they stack up against their competition in your very first demonstration of the software on your tablet or smartphone. This instant credibility will be extended when you sit down with your client and their lender.  Financial institutions will immediately gain confidence in not only your client, and their business, but you as a trusted advisor.

Best of all, Finagraph is reasonably priced, using a subscription model that is pay-as-you-go without any long term commitment.  You can start with a small subscription supporting just a few clients (and users) and then expand as you grow into this area of consulting. 

You can choose to pass along the cost of Finagraph to your client, or simply offer these critical analytics and datametrics as part of your core services. You can also provide your client with full access, or view only permissions that allow them to see their data in time frames you determine. The choices are yours.

Whether you are a business owner, a QuickBooks ProAdvisor, an accountant, or even a lender, the ability to garner key information from a QuickBooks company file is essential.  The capability of doing that at ‘the click of a button’ as opposed to going out and purchasing a 400 page textbook, studying for hours, and then taking the time to ‘number crunch’ for yourself, well (as one of those nameless advertisements on TV says), “that’s priceless.” For more information, or a free trial, check out the Finagraph website.


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