You can’t predict the future, but your business will inevitably face challenges as we enter the new year.
With that in mind, knowing your numbers is essential if you are to successfully achieve your goals.
Numbers tell the story of your business, allowing you to review and interpret the results of your business activity.
As a result, you can identify the symptoms versus the root causes, and spot early warning signs of any potential problems.
Scan the horizon
Whilst you won’t know what’s around the corner, you can pay close attention to any signs of change.
Horizon scanning can help your business detect threats, which will allow it to respond quickly.
Management accounts are a valuable tool for this. Your management accounts will include all the information you need to monitor your business and can assist with forecasting.
Your Trading Account tracks your sales, expenses, and gross profit to calculate the return you’re attaining before subtracting your fixed overhead costs.
Your gross profit percentage shows whether your margins are improving or declining.
Profit and Loss Account
Your Profit and Loss Account, also known as an Income Statement, reveals your earnings and costs over the year, tracking the general performance of your business.
It matches your income and expenses for the period, with modifications made for instances such as sales having been made without money yet being obtained.
Your Balance Sheet, also known as a Statement of Financial Position, offers a glimpse into your company’s financial standing at a particular point in time.
It assesses the net worth of your business, which is your assets minus your liabilities, indicating whether your business is solvent.
Statement of Changes in Equity
The Statement of Changes in Equity shows what happens to your profits. They could be paid out as dividends or kept in the business as preserved earnings.
It represents the net worth, or value, of the company and is a key marker of financial health.
Director Current Account
The Director Current Account documents all funds presented to the business by directors or taken out of the business as drawings.
This aids you in observing your personal expenditure from the business.
Fixed Asset Register
The Fixed Asset Register, also known as a Depreciation Schedule, records a company’s fixed assets, such as vehicles, plant and equipment, assisting the spread of the cost of these over their useful life.
The difference between profit and cash
It’s vital that you understand the distinction between profit and cash, and why a high profit doesn’t always result in more cash in your bank account.
Cashflow is important, as profitable firms can and do go out of business when starved of cash.
These aspects all impact both your business and you directly, that is why it’s vital to get the expert support of an accountant to help you be the best you can be.
Need advice on management accounts and cashflow planning? Contact us.