How do you communicate your small business financial ratios to your stakeholders?

1 Know your audience

Different stakeholders have different interests and expectations when it comes to your financial ratios. For example, investors may focus on your return on equity, lenders may look at your debt-to-equity ratio, suppliers may care about your inventory turnover, customers may value your gross margin, and employees may be interested in your net income. Therefore, you need to know your audience and tailor your communication to their needs and preferences. You can also segment your stakeholders into groups based on their level of financial literacy and provide them with different levels of detail and explanation.

2 Choose the right ratios

There are many financial ratios that you can use to measure and communicate your business performance, but not all of them are relevant or meaningful for your stakeholders. You need to choose the right ratios that reflect your business goals, industry standards, and competitive advantages. You also need to consider the context and purpose of your communication. For example, if you are presenting your annual report, you may want to use a comprehensive set of ratios that cover all aspects of your business. If you are pitching to a potential investor, you may want to highlight a few key ratios that show your growth potential and market share.

4 Provide context and interpretation

Financial ratios are not self-explanatory. They need context and interpretation to make sense and have impact. You need to provide context and interpretation for your financial ratios by explaining what they mean, why they matter, how they are calculated, and what are the implications and recommendations for your business. You also need to compare your financial ratios with your previous performance, your industry averages, and your targets or expectations. You need to highlight the strengths and weaknesses of your financial ratios and how they affect your business strategy and decisions.

5 Be honest and transparent

One of the most important aspects of communicating your financial ratios to your stakeholders is to be honest and transparent. You need to present your financial ratios accurately and objectively, without manipulating or hiding any data or information. You also need to acknowledge any limitations or assumptions that may affect your financial ratios, such as accounting methods, data sources, or external factors. You need to be prepared to answer any questions or concerns that your stakeholders may have about your financial ratios and provide them with supporting evidence or documentation. By being honest and transparent, you can build trust and credibility with your stakeholders and foster a positive and collaborative relationship.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?