I want to be able to understand what the numbers mean to my business. |
We keep getting conflicting advice. We just need the facts. |
I just don't have the time to cope with all the paperwork. |
Accounting Information - What you must know to succeed in business!
For many start-up and existing small business owners the whole accounting process can be confusing, and it does not need to be that way - help is at hand.
Just ask us and and we can clarify what you need to know and how to get it!
We can provide a quick and highly effective solution in just a 1 hour meeting with you.
There are three financial reports you need to understand and review every month - easily printed out from your accounting program. We suggest you use MYOB and we can set this up for you.The reports you need are:
Profit & Loss
This report is made up of two parts.
The trading account is - Sales less Cost of Sales = Gross Profit
This tells you how good [or bad] you are at making a profit on the sales of your product or services. This fundamental to your success. The Bench Mark for small business should be a Gross Profit of 50% - that is 50% of your sales should equal gross profit.
Sound high? Small business by it's very nature will have low sales volumes. If the sales volume is low then it is a commercial reality that the gross profit must be high to be able to pay the bills and to pay yourself what you are worth.
The operating account is - Gross Profit - Expenses - Wages = Net Profit. This tells you how cost effectively you are managing the business. The bottom line is that the Net Profit must be a positive number. Net Profit should represent a 30% ROI [return on investment] on the capital invested. Why? The golden rule in business is, you want back any money you have invested plus interest. A 30% return will give you your money in 3+ yrs which would be an excellent outcome.
How do we arrive at these figures? Start with the end in mind - that is work backwards from the outcome you want.
Net profit required + your wage required + business expense = Gross Profit Required. Decide on the Gross Profit Margin required based on industry knowledge. Your Gross Profit divided by the Gross Profit Margin will tell you how much you must achieve in Sales. E.g. Gross Profit $150k ÷ 50% Gross margin = $300k in sales. Question is can you business achieve that?
Balance Sheet
This tells you what the financial capacity of the business is. Assets less Liabilities = Owners Equity [the bit you own].
If you understand this report it shows you how money is available to the business and how you have used it to operate the business - there is a wealth of information here.
Cashflow Statement
This report is all about timing - is there enough cash available to pay your staff, your creditors and you as and when these fall due. In very many cases the answer is no.
How do you get this all in place? You must have budgets in place.
I think you get the picture - if you do not understand this information or the information is not available to you - you need to talk to us fast!
Please fill in the contact form and one of our team will contact you ASAP.
