Blog: Numbers are ImportantJune 1st, 2015
Entrepreneurs and start-up owners invest a tremendous amount of effort and time in their companies in order to strive for success. Detailed financial records are key to ensuring that you achieve the greatest possible return on your investment.
Solid financial records can provide substantial information about your business. They provide a snapshot of how well a business is performing at any given time; how monthly sales are doing, how much cash is have on hand, how many expenses will need to be paid in the upcoming month and whether it is affordable to purchase new inventory, tools or equipment next week.
Detailed records will help you manage company assets and determine whether business resources are being used efficiently and effectively.
The timing for collections of receivables and payables is different from industry to industry. Some businesses may normally collect within 30 days while others frequently extend to 60 days. Knowing this information will help manage your business’ working capital throughout the year and can help identify whether operational changes need to be made.
For those who provide products to customers, inventory management is critical. Up-to-date inventory numbers and historical financial data on company sale trends can help you monitor and plan your inventory. This will allow you to satisfy the demands of your customers but also ensure that your company’s working capital isn’t tied up in excess inventory when it could be better used to grow your business.
The phrase “Cash is King” is particularly appropriate when referring to managing a small business. By maintaining proper financial records, start-up owners can monitor their daily expenses and identify vital operational costs (and those which aren’t). This will provide insight to the individual expense requirements at any given time and help a business manage its cash flow.
Building accurate Financial Statements, Budgets and Variance Reports
Preparing accurate financial statements requires detailed accounting records. These financials will shed light on your business operation’s performance: the volume of business generated, the profit margins, which product lines are most profitable and what the operation’s bottom line is at any time. They can be used to measure performance, efficiency, assist with cost/benefit analysis and can provide insight into how your business compares to your competitors using industry averages.
Financial statements will also help with budgeting and forecasting by estimating incoming revenues and expenses. This can help accommodate any seasonality in business that your company may face and help plan expenses and purchases around it. These budgets are another tool that help manage company assets and liabilities from season to season. Budgets will reveal if your business is meeting expectations, and identify reasons for variances.
Armed with this information, the opportunities and benefits are endless. Potential challenges will be identified early enough to provide time for devising strategies to overcome them. Financials can pinpoint company strengths while also identifying weak areas that can improve. Your financials are the basis of all well informed strategic decisions on the direction and success you want for your company. However, as an entrepreneur, your focus should be on the growth of your business. Speak to your Crowe MacKay advisor on how we can help you manage your businesses’ numbers.
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