A Conversation with Joe: Impacting Your Profits Through Effective Use of Your Accounting Software
Friday, March 30, 2018
How have you defined the role of your bookkeeping and accounting system in your small business or farming operation? Have you elevated it to be an integral part of your business management toolset or is it just a means to cover those payroll and tax duties? Do you generate periodic financial statements from your accounting system on a regular basis and not just when you need them for your banker?
Effective use of the information gathered by your accounting system can improve your bottom line. Start with regular preparation of your financial statements consisting as a minimum of your balance sheet, statement of cash flows and profit and loss statement. Compare them with those form prior periods and your projected statements. Are you meeting or exceeding projections? Doing better or poorer than the past? Use them to start the process of identifying the factors critical to your success. Those factors will depend on the nature of your business. If your business does not sell on credit, the aging of receivables is not relevant, whereas if you do, they could have a significant impact on your cash flow. Similarly inventory would not necessarily be a consideration to a services related business, whereas if you are manufacturer or retailer, it could be a significant portion of your capital cost. Once you have the fundamentals down develop performance metrics or measures that enable you to drill down on the costs/revenues streams that have the greatest impact on your profitability. Which projects or line items are most profitable? Which ones are costing you money? Why?
Understand the capabilities of your accounting system. Does it have the ability to track your costs by project if that is what you need? If your business is cyclical in nature can you generate historical cash flow statements such that you can easily develop projections? Seek the advice and feedback of others such as your accountant, business professionals, your banker, and fellow business owners. Local resources you can reach out to guide you include SCORE (www.score.org), UWRF Small Business Development Center, (www.uwrf.edu/CBE/Centers/SmallBusinessDevelopmentCenter) or the Pierce County Economic Development Corporation (715-425-3881).