13 April 2016

Don’t fear the Financials by Steve Marsten

There are many people in business who are afraid of their numbers and it is quite striking really. Financial Statements can be unknown territory to many business owners and they can be a little intimidating.
Some people have been in business for sometime but still don’t like to actually “look” at their numbers. As long as the cash is hitting the bank account and they are getting paid, they feel everything is going well. Business owners start to get fearful when things start happening that they can’t explain – such as running out of money.
In a recent case I was listening to a client tell me that they feared they were going broke because it had become harder to pay the bills and hence sales “must be” falling. That’s easy to reconcile in this economic climate, however when we took to reviewing their figures we noted that sales had flat lined but were still quite robust.
The issue was they ran their business with the “cash” mentality that is - they purchased an item for $10 and sold it for $20 then they have made $10. However if you buy three things for $10 but only sell one then clearly you are $10 short!
Recording sales on a cash basis only and not on an accrual basis (or Non cash basis where you take into account the people that owe you money and the suppliers you owe money to) often it does not provide the full picture. It doesn’t actually tell you what’s going on in the business. 
The other issue is – if you only look at the bank account to judge the success of your business, you maybe making poor decisions on insufficient information. A business owner recently withdrew several thousand dollars from the business account at the end of the month thinking that they had had a good month. These funds were spent on a personal consumable item. Trouble was when the bookkeeper returned, she brought to the attention of the business owner, several thousand dollars of bills that had not yet been “entered into the system”.
Our solutions to these cases above, was to show our clients the benefit of tracking sales, stock, creditors and debtors using the Xero software and its add-ons. These business owners are now back in control of their businesses and no longer fear the figures. At Sothertons, understanding your financials is about actively driving your business. Call us on 4972 1300


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