Sound financial management is vital for business success, so it’s important to understand and keep up with your business accounts at all times so as to know how your company is performing and determine what steps to take if there are issues.
Not understanding basic business accounting is a serious shortcoming as it makes it almost impossible to monitor performance without the help of an accountant, so get familiar with the basics if you’re aren’t already and resolve to keep a regular track on finances.
The Tech Working For You
Much can be done thanks to systems and technology; modern accounting software means up to the minute, accurate reports can be produced and the latest in POS (Point of Sale) systems make it easy to track sales and stock to help provide a true financial picture and an accurate balance sheet.
Accounts Information You Need to Be Familiar With:
There are certain key aspects of your finances you should be aware of at all times; being familiar with the following covers the main financial basics:
The Balance Sheet:
may also be referred to as the ‘statement of financial position’, it provides a snapshot of your business’s financial state at a given time.
Assets your business owns including money and stock (hence the value of accurate POS-driven stock control as mentioned above), equipment, property, and materials appear along with a rundown of what the business owes.
“They really know how to read a balance sheet” is an old accounting cliché when complimenting someone’s financial acumen, but understanding and referring to yours frequently is a key way to keep abreast of finances.
alternatively known as the ‘cashflow forecast,’ this is very important information about your business so you should definitely become familiar with your cashflow record and refer to it often.
Cashflow is the flow of money in and out of your business; poor cash flow is a significant factor in businesses struggling or ultimately failing, and the grim truth is that many otherwise successful enterprises have fallen victim to poor cashflow ultimately causing a closure.
Knowing your cash flow position accurately means you can more readily take action to improve it if needs be or prepare for situations in advance where cashflow may suffer such as, for example, during periods of heavy expenditure or a natural slowdown in demand.
Profit and Loss:
This document shows what actual profits your business is making and how much it’s costing to create them in terms of your overheads.
With the above three documents it’s important to ensure they’re accurately updated and you refer to them frequently to help keep on top of your current financial position.
Efficient record keeping is also important to help you monitor finances; there’s nothing more frustrating than being unable to locate a certain document, invoice or receipt when putting together financial information, so ensure you have a sound filing system and your bookkeeping is completed frequently.
Remember too that you have a legal obligation to keep certain accurate records, so file paper documents carefully and ensure digital financial information is backed up regularly and efficiently.
Chances are you will hire an accountant – if only to prepare your figures for the IRS (Internal Revenue Service) – but they can help you keep on top of your finances and spot potential ‘bumps in the road’ ahead too.
Consider involving your accountant more if you don’t already; the extra in fees will be money well spent for improved financial monitoring and action-taking.