Right now you are probably thinking of the stereo typical accountant who is anything but sexy. They may be good at tax and get you a refund each year but you are definitely not lying awake at night thinking of them. Most business owners I speak to consider tax accounting or ‘doing the books’ their least favourite task and will do anything to avoid it.
But let me ask you this, is improving your profit sexy, do increased sales get you all hot and bothered or does better business cash flow send your pulse racing? And so it should or why else are you in business! While profit and money aren’t the only reasons people go into business without them you may not have one for very long.
Income less expenses = profit/(loss) right? Well there is a little more to it than that but you can regain control of your profit. Firstly your accounts need to be bang up to date. With many accounting packages now providing live bank feeds it is easier than ever to ensure your accounts are current. Customise your chart of accounts, reports and utilise features in your software to get the most from your financial reporting. Finally but most important, review your accounts and reports frequently to ensure expenses are under control, money is coming in regularly and profit is at a level both you and your bank manager are happy with.
Work backwards! Establish the level of income you need to cover expenses, plus hopefully pay yourself a wage. How many sales a week or a day will you need to make to get the required income. How many customers are necessary to achieve that level of sales. Lastly, how many leads do you need to generate and convert to customers to achieve the number of sales you want and therefore income you need. You may be surprised at the outcome of working through this process.
Cash flow is the oxygen or lifeblood of any business as lack of cash flow is the number one reason businesses fail, scary thought isn’t it. The first point we need to establish is that increased sales and profit does not necessarily equate to business cashflow. While sales may have improved these funds may be sitting in your debtors account while you still have to pay your workers and suppliers. Depending on your trading terms it could be several months from making the actual sale to collecting payment. Establish your terms of business with any new customers and run credit checks, invoice immediately preferably via email and have a good debtors policy in place for when you do need it for slow or non-payers.
Hopefully I have excited you enough that you’ll get stuck into your accounts this week and as a result get better financial reporting and business rewards!