All too often, small business owners work tirelessly at their craft only to realize a relatively small financial gain from all their efforts. In fact, business owners often say they are working so hard they can’t find time to maintain meaningful financial information, let alone the time required to analyze it and find out why they are not making as much money as they thought. More times than not, lenders request financial statements from a potential business client only to learn that they don’t have them, and when they do, they frequently have never looked at the financial information themselves. The old adage of “working smarter not harder” is especially appropriate when it comes to dedicating the time and energy necessary to maintain good financial records, analyzing the results and adjusting your business model to maximize the level of profitability that can be achieved for the same amount of effort.
The fact is, most small business owners perform the minimum required record keeping for the sake of providing enough information to file a tax return. Aside from accomplishing the bare minimum information necessary for Uncle Sam, a tax return is not likely to be a useful tool for improving your business because the information is not presented in a particularly useful format and because tax returns are typically dated by the time they are filed, especially if they are filed under an extension. At best, the tax returns will provide a historical perspective of the company’s annual performance, but will not likely provide you with information you can use for current strategy and planning.
Wouldn’t it be more useful to analyze the performance of your business in a more timely fashion? Wouldn’t you like to compare all the components of income and expense in the current month or quarter to the same month or quarter in previous years? Or maybe just track how this month is stacking up against last month.
Regular financial reporting can help identify trends and opportunities quickly enough to react and boost profitability. Regular income statements may reveal a change in the volume of revenue or changes in certain expenses over time, resulting in a change in the profit margin. Accounts receivable aging reports may reveal that certain customers consistently pay extraordinarily slow, cost you money, and represent a high risk of nonpayment. Having information like this in a timely manner will help you react appropriately and realize the full profit potential of your business.
At this point, you may be thinking that it would be great to have all that information at your disposal, but your business is not nearly large or sophisticated enough to require ongoing, frequent contact with an accountant or bookkeeper and the expense that would come with it, and you may be right. The good news is that there are several computer programs – such as QuickBooks – that are fairly easy to use with a little training, and can provide you with a myriad of standard and custom reports to help you assess the health of your business and identify emerging trends. However, the reports you get out of any accounting software will only be as good as the data input by the user. Your accountant or bookkeeper may be able to help you set up your software and give you guidance on how to use it.
Even with accounting software, you may still find it beneficial to get periodic reports from your accountant. Accountants spend their days poring over financial statements from a variety of different businesses and this experience will often result in additional insight and guidance that you may not realize otherwise. By starting the process yourself with accounting software, your accountant may not need to spend nearly as much time preparing your financial statements and you may be surprised just how reasonable the fees might be. Another benefit of keeping accurate financial records is that your tax filing will be a lot easier.
With a tough economy and all the other challenges for small business owners, it is imperative to take advantage of any opportunities you can to boost profitability. Accurate and timely financial reporting might just provide you the additional insight you need to thrive. As an added bonus, your banker will certainly appreciate it. QCBN
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Country Bank is a full-service community bank serving Yavapai County with offices in Prescott, Prescott Valley, and Cottonwood. Ryan Glennan, NMLS # 478327, is a vice president of Country Bank specializing in commercial lending and residential construction loans. Please visit www.countrybankaz.com or call 928-443-9595 for more information.
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