How healthy is your business? What your financials are really saying

June 7, 2015

According to Forbes Magazine, at least 8 out of 10 businesses fail within the first two to five years.

Do you know the current financial health of YOUR business?

Will your business become just another statistic?

Now there are many reasons why this occurs, including, economic downturn, lack of start-up or ongoing capital or the absence of effective entrepreneurial skills in the business. In fact I would also add to the reasons put forward by these financial fonts of knowledge, by suggesting that the lack of attention to the day to day accounting detail is what gets a lot of business owners into trouble. By this I mean the very act of day to day recording of the financial transactions of the business and the presenting of this data in the key reports that will inform and alert the business owner to potential problems that may exist or are likely to occur if no preventative action is taken to avoid them.

The day today transactions of a business can be reported and used in many simple ways to present the current financial situation of the business.

TIP 1:

Before I go any further here, I need to point out that:

If we are going to rely on the financial reports of a business to make GOOD management decisions, then we need to know that the information recorded in these reports is

ACCURATE – Rubbish in rubbish out applies here so it is imperative that all businesses have good solid accounting systems that are reliable and accurate.

RELEVANT – The information that we are relying on is directly relevant to the decisions that we are about to consider or make. It’s no point looking solely at the profit and loss for a singular accounting period if we are assessing the debt position of our business.

TIMELY – To be effective and of use in decision making, the reports need to be produced regularly and in a timely manner. We can’t do anything about turning around this year’s operating losses I we only have reports from the past financial year or operating period.

 The key reports that I recommend a business owner should review on a regular basis and by this I mean at least on a monthly basis are:

·         Profit and loss report  (and preferably against the budget Profit and loss figures prepared in advance)

·         Balance sheet

·         Cash flow statement/budget

·         Aged receivables

·         Aged Payables

·         Stock or inventory levels

The information provided in these reports will assist the business owner in determining:

·         The current financial position of the business or “Business $ worth”,

·         How the business is performing over a specified period

·         Why do I have cash flow problems  and where has the money gone

·         How much is owed to me and am I likely to collect all of this money

·         How much does my business owe to others

·         How well have we performed against our expectations

All these questions and more are absolutely important if we are to effectively and profitably run our business well into the future and ensure that our business grows and doesn’t fold.

NOW that you have read this – ask yourself if you know the answer to the question:

HOW FINANCIALLY HEALTHY IS YOUR BUSINESS?

To book your Small Business Financial Health Check email: admin@basagency.com.au.

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