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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