Business owners tend to prioritise getting new sales and delivering their products and services over many administrative tasks including bookkeeping. Some business owners, and managers for that matter, think of bookkeeping as a tool for managing cash flow and something that you must do for ATO compliance.
However; accurate bookkeeping provides information for making critical business decisions, like where best to spend your effort for maximum return. Here are six things your books say about your business.
1 – How you value your financial health.
Having up to date financial records enables you to measure the performance of your business at any given time and make informed decisions. Similar to how weight and cholesterol levels inform you to make better food choices, the currency of your bookkeeping reveals how you value your financial health.
2 – How your business performs against key business metrics.
The key to reaching any goal is to have a way of measuring when you achieve it and business is no different. You need to know if you’re charging the right price, spending strategically and making money. Your books enable you to calculate your gross profit, net profit, accounts receivable and liquidity enabling you to measure business performance and make important decisions to ensure you remain profitable.
Need the formula for key business metrics?
Gross profit margin = (revenue – cost of goods sold) / revenue
Net profit = (total revenue – total expenses) / total revenue
3 – What growth opportunities exist in what you’re currently doing.
Accurate accounts make it easy to determine the average value of each sale, how often each customer buys from you and for how long and your profit margin. By examining these figures you can identify what growth opportunities exist in what you are currently doing. Increasing each of these things by a small percentage has a compounding effect without the lengthy process of finding new customers.
4 – Your future liabilities and cash flow requirements
The decision to make a big purchase needs to be based on up-to-date and accurate information about the liquidity of your business. That is, regardless of profit, do you have the necessary cash flow to meet the future liabilities of the business.
5 – Your strategic spending limits in relation to expected returns.
Budgets are great means of holding business owners accountable and to ensure that unnecessary spending does not reduce profitability. However, budgets are only a useful measure when they are compared with actual expenses recorded in your books. This enables you to calculate return on investment which simplifies the decision making process. For example, if every dollar spent on flyers returned just fifty cents in sales you would stop wasting your money and if every $1 spent on Facebook ads generated $50 worth of business you might spend more.
6 – How much money you get to keep for yourself
This is probably the most important thing that your books say about your business. Are you getting a return for the time and money you are investing? Regardless of how you pay yourself, you can only determine the amount of money you get to keep with accurate accounts and up to date bookkeeping.
Accurate Accounts Bookkeeping are passionate about numbers and specialise in helping business owners make sense of their financial situation so that they can make informed decisions while doing what they do best. That is “delivering their goods and services to their customers for a profit”. Find the right solution for your business today. www.accurateaccounts.com.au