Josh Aharonoff, CPA on LinkedIn: 8 Ways to calculate Budget vs Actuals This is a really important report…… | 81 comments (2024)

Here are 14 Financial Ratios & Metrics (with definitions & formulas)Study these to take your financial reporting to the next level 👇1️⃣ Debt-to-EquityDefinition: A company's total debt to its total shareholder equityFormula: Total debt / Total equity2️⃣ Gross MarginDefinition: A company's Gross Profit displayed as a % of its RevenueFormula: Gross Profit / Revenue3️⃣ Operating MarginDefinition: The percentage of a company's revenue that is left over after deducting its operating expensesFormula: Net Operating income / Revenue4️⃣ Return on Equity (ROE)Definition: How much of a return you are getting on your equityFormula: Net Income / Owners Equity5️⃣ Return on Assets (ROA)Definition: Showcases a company's profitability by comparing its net income to its total assetsFormula: Net Income / Total Assets6️⃣ Inventory TurnoverDefinition: How efficiently a company uses its inventory by measuring the number of times inventory is sold and then replaced within a given time periodFormula: cost of goods sold / average inventory7️⃣ Accounts Receivable TurnoverDefinition: A company's efficiency in collecting its credit salesFormula: Net Credit Sales / Average Accounts Receivable8️⃣ Days Sales Outstanding (DSO)Definition: How long it takes a company to collect payments from its customersFormula: (Accounts Receivable / Total Credit Sales) x Number of Days9️⃣ EBITDADefinition: Short for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is used in accounting to measure a company's profitability, and approximation for free cash flowsFormula: Net Income + Interest Expense - Interest Income + Taxes + Depreciation + Amortization🔟 EBITDefinition: Short for Earnings Before Interest and Taxes, and one of many metrics is used in to measure a company's profitabilityFormula: Net Income + Interest Expense - Interest Income + Taxes1️⃣1️⃣ Interest CoverageDefinition: A company's ability to pay the interest on its debtFormula: Earnings Before Interest and Taxes (EBIT) / Interest Expense1️⃣2️⃣ Asset TurnoverDefinition: A company's efficiency in using its assets to generate revenueFormula: Net Sales / Total Assets1️⃣3️⃣ Days Payable Outstanding (DPO)Definition: The average number of days that a company takes to pay its accounts payableFormula: (Accounts Payable / Cost of Goods Sold) x Number of Days in Accounting Period1️⃣4️⃣ Return on Ad Spend (ROAS)Definition: Used in digital marketing to measure the effectiveness of advertising campaignsFormula: Revenue from Advertising / Cost of Advertising===These are just 14 metrics…there is a never ending combination of other metrics to study.It all depends on the context of the business.Which ones would you add?Let us know in the comments below 👇

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Learn 9 Ways to Forecast RevenueThis is the most important part of many financial models…and no 2 businesses are the same.Each business has a unique way in which they:➡️ Acquire customers➡️ Retain customers➡️ Sell to customers➡️ Record transactions (revenue, cogs, AR, inventory etc.)That’s why I’ve developed the Revenue Growth framework for forecasting revenue over here:https://lnkd.in/e9n7gaKHBut before you can forecast revenue, you need to understand which group of customers you are forecasting for…See, the way you forecast revenue from your customers will differ from each of these sources:➡️ EXISTING customers (expansions, renewals) ➡️ PIPLINE customers (close likelihood * contract size)➡️ NEW customers (can be any method using the revenue growth framework).That’s why I’ve also developed the Revenue sources framework right here:https://lnkd.in/efwAQHqcToday, let’s now talk about 9 ways that you can create a revenue forecast using these principles:1️⃣ Sales teamsThis is how many B2B SaaS companies forecast revenue .The idea is you hire a sales rep, and after a ramp period, they get assigned a quota.2️⃣ PartnershipsPartnerships are also common when selling to enterprises. Here, each time you close a partner , that partner will refer you business, while taking a commission.3️⃣ Product Led GrowthPLG is popular these days, and is one of the lowest acquisition models available, as the product “leads the growth” on it’s own.4️⃣ Historical TrendsSometimes, you may want to keep things extra simple, and use a historical trend with a growth factor. This can be especially useful with businesses heavy on seasonality.5️⃣ Upsells & ExpansionsMy favorite contracts are the ones that are not only RECURRING…but also EXPAND as time goes on.6️⃣ ConferencesConferences can be a great way to grow your business - whether you are going as an attendee, a sponsor, or hosting your own booth.7️⃣ Paid MarketingPaid Marketing is especially common with ecommerce businesses, where each dollar invested in paid ad results in x leads, which eventually convert to customers8️⃣ Public RelationsPR campaigns can yield a large amount of exposure to your brand, resulting in new leads, followed by converted customers9️⃣ Influencer MarketingInfluencers have large reach with their audiences, and a small mention of your brand can result in large traffic===These are just 9 ways in which you can forecast revenue, but as mentioned….no 2 businesses are the same.What are your tips for forecasting revenue?Let us know in the comments below 👇

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Learn 71 Excel Shortcuts in less than 15 minutes 🤯you are going to FLY once you master these shortcuts 🚀⌨️When I first started my career, I used the mouse for everything in excel.I often times saw people instead moving at LIGHTNING speed by using just the keyboard⚡I heard horror stories of bosses threatening to confiscate the mouse if their employees don't learn to use only the keyboard.Fast forward to today, and I’ll often times hear clients say “Damn, Josh!” as I’m on the phone with them sketching out their thoughts in excel using only the keyboard.Many people think that keyboard shortcuts are overwhelming, and too hard to learn…but in reality, MANY of them are pretty intuitive.Here, let me show you…⌨️ THE ONES YOU ALREADY KNOWThese are keyboard shortcuts that I’ll bet you’ve already used across many applications…1. Ctrl b - bold2. Ctrl u - underline3. Ctrl i - italic4. Ctrl c - copy5. Ctrl x - cut6. Ctrl v - paste7. Ctrl a - select all8. Ctrl s - save9. Ctrl n - new10. Ctrl o - open11. Ctrl p - print12. Ctrl f - find13. Ctrl z - undo14. Ctrl y - redoAnd just like that…you now know 14 shortcuts.But I know what you’re thinking - you want the cool ones to impress your friends, right?Then let’s kick it up a notch 👌⌨️ THE ESSENTIALSThese are the ones above all else that you need to be using1. Ctrl arrow - jump to next / last active cell2. Shift arrow - highlight cells3. Select row - shift + space4. Select column - ctrl + space5. Insert row / column - ctrl + on numerical keypad6. Delete row / column - ctrl + -7. Remove gridlines - alt + w + vg8. Create table - ctrl + t9. Ctrl + 1 - open cell dialogue boxAlright, now let’s talk about 3 important shortcuts using the F keys:⌨️ THE F KEYS1. F2 - edit cells2. F4 - fix references3. F5 - go toOK…if you’ve made it this far, you have graduated from Tortoise 🐢 to Hare 🐇 But let’s get you to fly 🕊️…and for that, we’ll need to introduce the ALT key.Let’s cover 2 quick shortcuts using the alt key1. Autosum - Alt + =2. Access dropdown - Alt + ↓But Alt key shortcuts are much more powerful…Most people don’t realize that alt key shortcuts are actually keypad combinations.Instead of holding down all the keys together, you tap them one after the other…and with the alt key, you can access pretty much ANYTHING you need in excel.Here are some of my favorite…1. Freeze panes - alt + w + f + f2. Autofit cells - alt + h + o + i3. Group cells - Alt + A + G4. Remove Duplicates - Alt + A + M5. Define name - Alt + M + M===Excel keyboard shortcuts are like anything in life - the more you practice, the better you get.The better you get, the faster you are in excel.The faster you are in excel, the more time you have…your most precious resource.Check out the video below to become a pro, and don’t forget to subscribe!https://lnkd.in/eVJiWtYk

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Learn about the Chart of Accounts 👇What is the Chart of Accounts?The Chart of Accounts is a list of your General Ledger (GL Accounts) that make up your financial statements (specifically, your Profit & Loss and Balance Sheet)Your Chart of Accounts can make or break your financial statementsWhen set up poorly they…☹️ Confuse the reader☹️ Don’t tell an accurate picture of what’s happening☹️ Make it challenging to draw insightsHere’s are some tips for avoiding these mistakes:➡️ Understand WHO the readers of the financial statements areBefore we can decide how our financial statements will look, we must understand who is consuming this data.Your job is to make this data easy for this audience to consume!➡️ Apply the proper balance between DETAIL and SUMMARYThe readers of the financial statements should be able to grasp what’s happening with the business, with just the right level of detail…not too much, and not too less.Avoid using accounts that can be grouped into one while maintaining the same significanceand avoid using accounts that are too general that would require further commentary to understand➡️ Include SECTIONSYour financial statements should have a proper order where the readers can understand key accounts and how they relate to one another.Combining accounts into sections can help improve readability, allowing the audience to grasp what’s happening more quickly➡️ use NUMBERINGMost Accounting Software will sort your chart of accounts alphabetically by default.This may not cause much of an issue, but can become challenging to organize as your chart of accounts grows.Adding numbering helps you maintain greater flexibility in your ordering, and when set up properly, can help the reader spot out patterns in how certain accounts are numbered➡️ Set up DEPARTMENTAL TRACKINGUnderstanding what you’re spending money on is helpful…Understanding WHO is spending that money is even more helpfulThat’s where departmental tracking comes inHere, you have 2 options:1️⃣ Utilize a “class” for each transaction2️⃣ Add each department as a new section on your Chart of Accounts===Those are a few of my suggestions for keeping your Chart of Accounts healthy & cleanWhat would you add?Let me know in the comments below 👇

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The 52 Card Deck of Finance & Accounting 🃏Pick up a card and learn something new each time!There is a never ending list of things you need to know if you want to become a CFO…What better way to learn while having fun with the family?👍 Give this post a like if you want me to produce this deck of cards!Here’s what’s included:❤️ ACCOUNTINGLearn the fundamentals of Accounting, the language of business!Master key terms such as:• Cash vs Accrual• Balance Sheet• Bank Reconciliations• General Ledger• Gross Profit• Profit & Lossand more…♠️ FINANCIAL PLANNING & ANALYSIS (FP&A)FP&A is my favorite area of Finance & Accounting, and once you’re done with these cards, it will be yours too!Learn all about FP&A, including key terms such as:• Budget• Forecast• Planning• Varianceand much more…🔸 FINANCELooking to get a loan? Value a business? Work in investment banking?Then you’ll love these cards…Get familiar with many terms such as:• Discounted Cash Flows• Free Cash Flows• Net Present Value• Return on Invested CapitalAnd more!♣️ AUDIT / TAXIf you’re thinking of joining public accounting…you’ll need to know about Audit and Taxand if you’re not…odds are you’ll still need to know these termsBecome a pro at auditing with key terms such as:• Statistical Sampling• Qualified Opinion• Going concernAnd become a tax expert by picking up these cards:• Income Tax• Sales Tax• Filing Extension===I had a lot of fun putting this one together, and hope you enjoy playing with the 52 card deck of Finance & Accounting!What are some other Finance & Accounting terms you’d add to this deck?Let us know in the comments below 👇PS: If you’d like to get a copy of this deck of cards, give this post a like and let me know in the comments below...if enough people ask, I’ll get it produced!

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The CFO Tech Stack 🙌After working with 100+ companies in my career…I’ve been exposed to TONS of tools.These tools are vital in helping us:→ work efficiently→ reduce errors→ reduce costs→ save timeHere’s an overview of what each of these tools do➡️ ACCOUNTING SOFTWAREThis can be a traditional accounting software….or a full fledged ERPThe idea is that instead of utilizing a spreadsheet, you have the power to leverage:→ automatic bank feeds→ integrated & dynamic reporting→ bank reconciliationsand so so much more➡️ AP PlatformAlmost every company has bills to pay…and many are still processing them manually from their bank…or worse…via check 🤮An AP platform is crucial, allowing you to:→ upload bills right from your inbox→ categorize & sync bills to your accounting software→ collect the necessary approvals→ process payments directly from one platform➡️ Payroll & HRISWe’ve come a long way with payroll.No one does this by hand anymore - everyone uses some form of a payroll company.That payroll company helps you:→ onboard new employees→ process paychecks, with withholding taxes→ remain in compliance➡️Expense Reimbursem*ntsPeople are always spending money on their personal cards…it’s a popular way to rack up points.Expense reimbursem*nt softwares make it easy for you to manage the repayments, allowing you to:→ upload receipts→ generate expense reports→ process payments➡️ Payments & Credit CardsInstead of dealing with the headache of expense reimbursem*nts…why not give your employees a virtual credit card?With virtual credit cards you can:→ create a card→ set a limit→ destroy a card→ control which vendor they can payall in a matter of seconds.This is one of my favorite tools in this list➡️ Tax & LegalTaxes are notorious for being complicated and difficult to file.The same holds true for legal matters…which is a common aspect of your cap tableI love working with tools that allows me to stay in compliance..without having to read up on all the legalities 🧐➡️ Revenue & Contract MgmtGot 40+ customers? Don’t make the mistake of managing that all in excel.Sure, Excel is my favorite tool on this list…but you need something much more robust.Something that can:→ calculate various metrics (MRR, NDR, CAC etc.)→ manage contract changes, both retroactively and prospectively→ calculate revenue & deferred revenue➡️ Banking & TreasuryWe all remember what happened earlier last year with SVB…but thankfully, they aren’t the only ones providing banking solutions.I’m a much bigger fan of using a well known bank as opposed to a regional bank…as the bigger guys have a lot of integrations & easy to use platforms, which is key for scaling.===I have so much to comment on, but only have 3k characters.Got any tools that you think I missed? Let us know in the comments belowPS: Check out the comments below for my favorite tech stack 👇

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Learn every Excel error…and how to resolve 👇Excel errors are really scary 😨 But with the right tools, you can debug even the biggest error in your excel file.Let's walk through each one and how to resolve:⚠️ ###This may be the easiest error…it simply means that the data cannot be displayed, because the column is too narrow.💡Resolution → extend the column⚠️#REF!This is a really popular error, and relates to when you have a range in a formula that can no longer be found…IE it was deleted💡Resolution → utilize the trace dependents button before deleting something⚠️ #DIV/0This is when you try and divide something by 0💡Resolution → trace the reference in the formula, and revise the denominator from 0.⚠️ #N/AThis one is similar to #REF!…only it’s in the context of lookups, and specifically whenever a match can’t be found💡Resolution →double check the lookup value in your formula to ensure it exists in your lookup range⚠️ #NAME?This is whenever you have a typo in your formula, or named range.💡Resolution → double check the spelling and ensure you’re using the right naming⚠️ #VALUE!This one is whenever you have an incorrect character in a formula or reference💡Resolution → refer back to the range where the data is contained, and remove any incorrect characters⚠️ #NULL!This error will show whenever you either have an incorrect data type of number format in a formula, or if excel can’t perform an excel calculation.A popular example here is when you try to take the square root of a negative number in excel.Similarly, you may come across this error when using IRR or RATE and no result can be found.💡Resolution → you can enable iterative calculations, just like you would with circular references.⚠️ #NUM!You may come across this error whenever you include a space in a formula instead of a : or a , between 2 arguments.The resolution is simple - replace the space with a colon or comma⚠️ #CALC!Here’s another one that you may not have come across…Array functions are those that return an array or results rather than a specific result. In this case, there’s no answer to return, so you’ll get this error.💡Resolution → double check your formula and ensure that your search value can be found⚠️ #SPILL!This one is pretty straight forward, and is reserved for when you try to utilize a spill function.More specifically, it’s when your spill function is blocked by a value, and the function can’t SPILL into other cells.💡Resolution → simply remove the values that are blocking the spill function.⚠️ #BLOCKED!This last one I actually never heard of, till one of my readers pointed it out - it’s when you don’t have the permissions to access data, such as a license, connection, or privacy setting.💡Resolution → check your permissions / licenses.===Is your Excel sheet wkbk now error free?Mission accomplished 🙌 Let me know which one you've seen before below 👇

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Learn about Cash vs AccrualThese 2 methods are the foundation to financial reporting…and can result in wildly different figuresLet’s start with some definitions:➡️ What does Cash vs Accrual Mean?These 2 methods are ways in which you can report information on your financial statements.Each method follows a different set of rules, which can cause the data to mean something entirely different across each.➡️ CASH BasisUnder the Cash basis of accounting, money IN is treated as income, while money OUT is treated as expensesNote that while this is generally true, there are some exceptions:☝️Money IN can represent an expense refund (negative expense), or debt (which is a balance sheet item) to name a few…✌️Money OUT can represent a sales refund (reduction in sales), or inventory / fixed asset (which are balance sheet items) to name a few…➡️ ACCRUAL BasisUnder the Accrual basis of accounting, income is only recognized once it’s EARNED, while expenses are only recorded once they are INCURREDWhat does that mean?Earning income means you delivered your product or serviceIncurring expenses means you consumed something that had a cost …and this is where so many of the adjusting journal entries that are required each month are prepared such as1️⃣ Prepaids - causing you to amortize certain expenses paid upfront to be split over the the period in which it gets incurred2️⃣ Deferred Revenue - causing you to amortize income collected / invoiced upfront over the life of the contract3️⃣ Accruals - causing you to recognize certain expenses in the current period, even if the bill hasn’t been received, or the payment has been made🤔 So which method do I prefer?For small companies, the cash basis is great, as it simplifies much of your reportingAt the same time, larger companies almost always opt for the accrual basis of accounting, for the following reasons1️⃣ GAAP Requires AccrualWhile the IRS may allow companies up to a certain size to report under either method, GAAP requires you to reconcile under the accrual method.That can be especially relevant for the 2nd reason:2️⃣ Investors like to see what’s really happeningWhen you have outside investors, it’s common for them to want to see your financial statements under the accrual basisWhy?Because the accrual basis explains what’s really happening in the business, allowing you to make better sense on key KPIs & margins, and to forecast the futureSo in short:◾SMALL BUSINESSES without a heavy amount of outside capital can benefit from the SIMPLICITY of the CASH BASIS of accounting◾ LARGER BUSINESSES with a larger amount of outside capital are often required to record under the ACCRUAL basis===That’s my take on the Cash vs Accrual…but there’s much more to itWhat would you add?Join the discussion in the comments below 👇PS: We cover this topic, and much more in my course Accounting Made Easy🔗 https://lnkd.in/eNdDWx52

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Learn 9 Ways to Forecast 👇Each time I build a forecast for a client, I work on first getting to know their business.I ask questions like…❔ How do you make money?❔ What are your plans for growth?❔ What is currently happening with your business?From there, I start to formulate a rough idea for how we’re going to build our forecast…but each section of the Profit & Loss and Balance Sheet may require a different approach.While they all differ, almost all forecasts I build include one / all of these 9 methods:1️⃣ 6 mo. historical average 🤔 How it works → take the last 6 months value. Can take it one step further by adding a buffer (like a 5% increase)💡 Why it’s useful → The future often times blends well with the past, especially in the first few months of projections2️⃣ Prior mo. balance🤔 How it works → Set your projection to last months value💡 Why it’s useful → extra helpful when forecasting the balance sheet for accounts with minimal movements3️⃣ % of revenue🤔 How it works → Set your projection to take a % of revenue💡 Why it’s useful → As revenue scales, expenses tend to scale as well4️⃣ $ per hire🤔 How it works → Set a $ figure for each hireWhy it’s useful → Expenses / capex often times scale with each new hire5️⃣ Fixed Assumption🤔 How it works → enter in any values or schedules you have on hand💡 Why it’s useful → for items like insurance or rent where you have a fixed schedule, you can plug them right into your forecast6️⃣ YoY Growth🤔 How it works → take the value from 12 months prior and add a growth factor💡 Why it’s useful → for companies with seasonality, you can match the schedule from the prior year, and add a buffer if need be7️⃣ Annual inputs🤔 How it works → Enter in assumptions for the entire year, then divide by 12 for monthly projections💡 Why it’s useful → simple and quick way to forecast for an entire year8️⃣ Departmental Intake🤔 How it works → sit down with each department head, and come up with a bottoms up budget for their department💡 Why it’s useful → collect valuable information that you may not have insight into, hold each department head accountable to results & performance9️⃣ Zeroed out🤔 How it works → forecast 0 going forward💡 Why it’s useful → can be useful if you don’t expect any future values in this account, or if you project values in another account that relates to this account===So which is the right method?There is no right one method for a business…each line item on your general ledger should be analyzed as you choose the best forecasting method.As a general idea, I typically start out with making all opex accounts other than headcount a 6 month average…and every balance sheet account other than cash + retained earnings equal to last month.From there, I can add more and more detail as necessary.What is your favorite method of forecasting?Let us know by joining in on the discussion in the comments below 👇

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Look ma, I’m on Youtube!Learn The Accounting Equation like never before…I’m thrilled to announce the launch of our channel on Youtube today 🥳Over the next several months, I will be uploading videos on Accounting, FP&A, and excel topics to help you continue to grow in your career 🚀Like my content & infographics on linkedin? then you’ll LOVE the videos we’ll be producing on youtube…starting with this one on the accounting equationThe Accounting equation is often times the first thing you’ll learn in a college Accounting course…and many would say it’s the most important concept in Accounting (hence the name)But what’s so special about it? Let’s dive in.➡️ What the idea?This equation summarizes how a business can be interpreted using a report called a “Balance Sheet”.It introduces the concept of “double entry” accounting, where every transaction in a business affects 2 items in a balance sheet, and atleast 1 of these section.➡️ What exactly does it mean?Let’s do a quick set of definitions…Assets → Items of economic value that the business owns or substantially controls (cash, receivables, inventory)Liabilities → amounts that you owe to creditors (credit cards, loans, deferred revenue)Owners Equity → amounts that the owners are owed (IE: what’s left after you subtract liabilities from assets)So the accounting equation explains that all of your assets came from either amounts funded by creditors (liabilities) or owners (owners equity)➡️ What’s so special about that?Well…a lot.1️⃣ It all balancesNet Income is calculated on your P&L by taking all income accounts less all expense accounts.And that feeds into your owners equity via an account called retained earnings.So when net income goes up, your owners equity goes up…when net income goes down…your owners equity goes down.Since Assets must always = liabilities + owners equity, you know that the must be a corresponding effect in your assets or liabilities.2️⃣ Debits & CreditsDebits & Credits are the mechanism you use to showcase the movements of account balances in your general ledger.So however they work for Assets, is the complete opposite for how they work for Liabilities and Owners Equity.For example:Assets: ⬆️ Go up with a Debit, ⬇️ Go down with a creditLiabilities + Owners Equity: ⬆️ Go up with a credit, ⬇️Go down with a debitNow you know your debits & credits===I hope you enjoy our first video, because we have plenty more coming!Please don’t be shy and let me know your feedback in the comments below 👇https://lnkd.in/eAgn-4bq

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