Mistake No. 2 – Not Knowing Whether You’re Making or Losing Money
Annual financial statements or accounts prepared once a year many months after your Balance Date are only really useful for working out your tax bills, yet for the majority of business owners this is the only financial information they see.
Prior to the introduction of computers for all and accounting software it was too expensive for most businesses to prepare periodic management accounts since preparing the accounts manually from traditional hand-written books and records was too time-consuming. However nowadays good accounting software is as cheap as dirt and easy to use and also is an essential business tool as it will also take care of your invoicing, customer and supplier databases, accounts payable, job costing, divisional or branch accounting, timesheets, and much, much more.
And what else will accounting software do for you at the click of the mouse? Yes, you guessed it, management accounts, both Profit and Loss Accounts and a Balance Sheet, both for the month or quarter as required, or the year to date, compared with your budgeted figures or comparatives from the previous year. OK they won’t be quite as accurate as your annual financials but probably 90% of the way there, assuming you’ve balanced the bank, got your Accounts Receivables and Payables right and are using Inventory tracking.
Armed with the knowledge of whether you’re making a high or low profit or even a loss enables you to react so much quicker to your circumstances, whether it be tax planning if you’re making good profits or cutting your expenses or your drawings if you’re not doing well. That is, of course, unless you’d rather stick you head in a bucket of sand in blissful ignorance until it’s too late and you go bust!
Keeping track of whether you’re making or losing money is just common sense business, so if you need a hand to work your profitability or otherwise, contact Nick on 0800 ASK NICK or email [email protected].