If present, residual balances are usually the result of incorrect posting by accountants, or improper payments. Making payments on liabilities owed generally runs smoothly, but there always remains the possibility of a residual balance in their general ledger (GL). A lot of companies have several accounts payable sub-accounts. In terms of accounting, this represents liabilities. Hopefully, life beyond the profit and loss statement will get you closer to your dream life.Accounts Payable (AP) handles the money a company owes to its vendors. You can get an “aha” just by computing these ratios. When you put your goals into numbers and on paper, they seem more real and achievable. How many volunteer hours or dollars you spend vs.How many countries (or states) you want to visit each year vs.The number of customers you have that really fit your ideal client and how many more you need to go.You can have fun with metrics and ratios in and out of your business. What’s on your “bucket list?” (This is a list of things you want to do in your lifetime before you die.) Figure out the metric that will get you thinking about doing your dreams sooner rather than later. This assumes you worked the rest of the year. For example, if you took 5 1-week vacations from work last year, that would be 25 days, resulting in 10%. Estimate the numbers of days you were off, and divide by 250. It’s simple to compute, and you can estimate it if you don’t track your time.Īssuming a 5-day work week, there are about 250 working days in a year, not including about 10 holidays. This ratio measures how much time we are able to spend away from the office. To create more leverage in the example business, the owner could sell or develop more products, hire another teacher, hire an additional consultant, and/or hire someone to review the consulting work of the employees. If your revenue streams are flexible, you can work on moving more of your business income over to the leveraged side. Both hourly consulting and training classes are partially leveraged because the business owner spends time teaching, consulting, and supervising. Here’s an example, assuming this business owner has a staff of five people. Once the product is developed, it takes little incremental time to sell (unless you’re in retail). And revenue that is fully leveraged includes product sales. Revenues that are partially leveraged include group programs such as classes and events like webinars and conferences as well as hourly consulting that your staff performs with your limited oversight. Examples of revenue that are not leveraged include seeing clients one at a time and selling hours-for-dollars services without a staff. Leveraging your business revenue is a way to work less while making more money. You might decide to be more intentional about moving your income to passive sources so you can do the things you want to do. The numbers often drive people to action. The “aha” comes when you see the numbers. They also might question why they are spending so many hours working so hard for a fraction of their monthly income! In the example below, this person is well on their way to retiring. (These definitions correlate to your time spent, not the IRS definitions.) Put the income in the appropriate column, passive or active. Income is active if you spend time earning it. Income is passive if you spend almost no time earning it. If you are active in your business, this will be the lion’s share. Investment income will only include the time you take selecting your investments and managing your portfolio. For interest income, it is likely to be very little. Then write down how many hours you spend working to earn each type of income. You might have interest income, rental income, and investment income along with your business income or salary. Make a list of all of your sources of income (not just business) in a spreadsheet. If you’d like to work less as time goes by, then you’ll want to create your passive vs. It might be fun to come up with a few lifestyle ratios to help you measure and move toward your personal goals. Those numbers will help you meet and improve your business goals, but the question is, what numbers are you using to determine if you are meeting your life goals? Revenue, net income, total expenses, and payroll costs are just a few of the items that you may be monitoring on your profit and loss statement. Each month, you may anxiously await the reports that provide the numbers that help you manage your business.
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