Overhead allocation is not over your head For Clients & Profits Pro users, the Overhead Allocation worksheet and Client P&L Analysis work together to divide the cost of running your business among your clients. They incorporate a client's job costs with a portion of shop overhead to show the true cost of servicing your clients. The first step in preparing the updated Client P&L Analysis is the Overhead Allocation Worksheet (from the G/L window choose Edit > G/L Tools > Overhead Allocation Worksheet). Staffers with billable time for the period are listed. Enter in direct service costs (salary + cost) for each billable employee. (The resulting amounts applied to each client appear in the Direct Labor column on the Client P&L Analysis.) Choose one of four formulas for distributing overhead expenses to clients, after direct labor and direct expenses are taken out. They are: (1) Agency Direct Service Costs (2) Agency Billings (3) Agency Income, or (4) Agency Direct Client Hours.) The Client P&L Analysis takes information from allocation worksheet and distributes labor costs in the Direct Labor column. Direct Expense column shows any costs from expense, other income, or other expense G/L accounts posted to a specific client. The Client P&L Analysis allocates the balance of administrative expenses using the formula you chose earlier. (Total administrative expenses, other income and expenses minus allocation of direct labor and direct expense equals the balance available to allocate to clients.) Total Income, Job Costs, Net Revenue, Direct Labor, Direct Expense, Overhead Allocation, and Net Income on the Client P&L Analysis equals your monthly Income Statement.

By Rebecca Cox

   Clients & Profits ratio analysis reports are powerful tools to help you better manage your business. They let you analyze liquidity, solvency, and profitability ratios to pinpoint problems before they become disasters -- and take steps to improve financial solvency and your bottom line.

Clients & Profits has 11 liquidity ratios that allow you to compare balance sheet items over time. Ratios are used by financial analysts to compare your performance with comparable companies in other industries. Banks, for example, use liquidity ratios when evaluating loan applications.

The most common ratio is the current ratio (current assets divided by current liabilities), which red-flags any potential problems. Generally, a healthy business has a current ratio of 2:1. If it's lower, you'll have trouble meeting current debts. Track it over time and investigate changes. If current assets aren't increasing at the same rate as current liabilities, it's a sign of potential problems.

A/R turnover and average days in A/R are two other important liquidity ratios. Average days in A/R should be higher than your credit period plus 15 days. If these two ratios are increasing, it's time to review credit and collections policies.

Six solvency ratios help to analyze your agency's debt load. Debt to asset ratio should not be higher than 50 percent. If it is, you may have trouble meeting your debt obligations.

Seven profitability ratios, including return on equity (net income divided by owner's equity), calculate earnings on investment. It should be at least as high as bank interest on CDs.

Compare your ratios with the industry to see how your agency measures up.

Dun & Bradstreet and Robert Morris Associates publish directories that list ratios by industry. Also, advertising associations such as AAAA and the Second Wind Network publish ratio and financial information about their members.