Financial Statements – Your Secret Weapon
Last month in Part One, “It’s easy to get out of your depth with your bookkeeping – things to check” we covered some challenges often experienced by DIY bookkeepers and some checks you can implement to minimise the risks of mistakes with your bookkeeping.
This month, we are looking at the benefit of having a bookkeeper generate accurate financial reports for you to review – and some you may not have heard of before.
Financial Statements – Your Secret Weapon:
This is the part with bookkeeping becomes your best friend. We recommend that you schedule dedicated time for reviewing your business’s financials. Great bookkeeping means that your life will be easier and you can confidently make good financial decisions. You can’t underestimate the relief of being on top of your liabilities and receivables including BAS and payroll and being a position to work with your accountant on your income tax provisions. Trust us, when you have someone besides you, it really is easy to understand. Some crucial financials you will need:-
This key startup metric, at its simplest, is how much cash you have on hand vs. how much you spend each month. For example, if you have $50,000 in the bank and project to spend $5,000 per month then you have 10 months of cash even if you don’t make a cent in revenue. Your loans are covered and you have a much-needed safety buffer in these changeable times. If not, it becomes the project to work on and check each month.
Profit and Loss:
Sometimes just known as net profit margin. Put simply, this number tells you how much profit you are earning for each dollar of revenue. In other words, are you overspending? Do you need to raise prices or cut expenses? You may be depositing bundles of money in the bank from a prior period, but work has slowed down. The power of this report is generating a report where you compare the current reporting period to this time last year, or perhaps last quarter to track if you are growing, truly making a profit, or just treading water.
This report shows you your assets, liabilities, and shareholder's equity at a specific point in time. It is equally important as your Profit and Loss report, as it shows the overall health of the business, it’s liquidity, and how easily its assets can be turned into cash. A mistake often made is a healthy profit and loss is reviewed, and decisions made on that alone, without also reviewing how much GST, superannuation, accounts payable are coming up at the end of a reporting period. This is one of the documents lenders, investors and some governing bodies look at to estimate the liquidity of a business.
Where are your customers, who are buying what?
Who are your biggest customers? The Pareto Principle states that 80% of the effect comes from 20% of causes. Are one or two big, loyal customers keeping the lights on? Are you spending a lot of time servicing customers with a low-volume average spend? By reviewing your customers and their spend with you, you will find out why who and what, and make business decisions based on your findings. You might decide not to hold so much inventory in one area, expand in another, or run ads to a geographically targeted customer or area – or open an office there for easier access to your prime demographic.
Who are your top suppliers?
Are you somebody else’s best customer? Use that data to negotiate volume discounts or to shop around for a better price on that service. Reducing costs will allow you to stretch your business’s dollars even further. By keeping an eye on your gross profit margin, you can watch to see if supplier pricing is creeping up in tiny increments that have not really been noticed, but overall, is eroding your profits.
Doing your own bookkeeping (if you have time):
As a business owner, you’ll need to choose early on whether to spend your valuable time on accounting or bookkeeping tasks or to outsource these to the experts. Let’s explore your options:
It is your Accountant that will advise on early-stage questions such as “What business structure or accounting method should I choose?” and of course, you will do regular reviews with an Accountant familiar with your industry to help you pay the least amount of taxes possible, and protect you from the ATO limelight.
But the tricker bit is when you choose to manage your own weekly or monthly bookkeeping tasks. Whilst you can check in with your accountant to guide early-stage questions such as “which expenses can I write off for an immediate tax deduction, buy or sell”, the challenge of correctly capturing that data in your journals requires expertise.
In our experience, if you don’t have this expertise, or even when you have an in-house bookkeeper, it can be helpful to have an external bookkeeper who is a professional member and in touch with industry training, regulations and changes engaged to review entries. We know budgets are tight, especially in the early stages, but if you are looking for balance in your life, and correctly balanced books, it might be best to leave it to a pro.
At BalanceWell Bookkeeping, we give you a team of qualified bookkeepers to do your books and set up your systems and simple software to keep track of your financials. You get regular access to our own professional bookkeeper, monthly financial statements, and you can trust that your accountant can then review your files and work with your taxes without a million back and forth emails.
BalanceWell Bookkeeping specialises in giving you back balance in your life and confidence in your decisions with great bookkeeping. If you would like a confidential discussion, or free data health check, please get in touch today and let us help you.
For more information, please contact Judy on 0431 103 257 or email at email@example.com to arrange an appointment.
#bookkeepinginbrisbane #bookkeepersinbrisbane #balancewellbookkeeping #balancewellbookkeepers #bestbookkeeperinbrisbane #brisbanebookkeepers #brisbanebookkeeping #remoteworking #cloudbasedaccounting #cloud