It is important to understand if your business is actually profitable or not. It is easy to be trapped into thinking you are making money whilst there are lots of transactions both in and out and you get caught up in the day to day operations of your small business.
Visibility is one of the keys to managing profitability and making sure that your business growth is sustainable. What I mean by that is, that it is easy as a small business owner to lose track of the true performance as the business grows and activity increases.
- You must maintain good and accurate records of your daily transactions. It doesn’t matter if these are recorded manually or by a software package, it is essential that you understand what you are looking at. If your profits vary from say month to month, you should be able to spot the reason and have clarity around how you are performing and why. Properly constructed financial reports are a must!
- Targets and forecasts are an invaluable tool to measure your performance against. Preparing a budget for both income and expenditure and then comparing actual transactions against the budgeted figures will give you a guide on how you are travelling and will make any ’overspending’ or any unexpected costs standout.
- You should know and understand how each product line or service is performing. Don’t let the high performing areas of your business cover up the under performers.
- It is important to manage working capital. If your business is not generating enough profit it will run out of cash.
- Many small businesses have good growth opportunities and it takes skill to manage this. Having a clear financial plan will help guide you and ensure that you are not making economic commitments that can’t be supported.
If you would like to discuss how to set up your financial reporting or understand the information contained in financial statements, budgets or plans we would be happy to help.
Should you require further information, please get in touch with our team.
Amanda Wilkens – Director
B.Comm CPA