In a down economy making good decisions is critical. These informed decisions should come from accurate financial numbers. Numbers determine which levers to pull to increase your profits. Businesses need to review and analyze their numbers periodically. Many business owners have a hard time finding the time, understanding what the numbers mean, or even determining if the figures are correct. This is where an accountant can step in and bring meaning to the numbers and take the time to point out important issues. There are five things an accountant will focus on with regards to the numbers:
1) Examine Costs
It is very important to examine your costs and compare them to revenue. Typically when revenue goes up, costs rise as well. In contrast, if business revenue goes down, costs should be cut. Many businesses will wait too long before decreasing costs after revenue has gone down, causing that company to lose substantial amounts of money. It is important to keep the financial records up to date so that you can react quickly when revenue drops. Accountants will be able to review financial statements and point out costs that are adversely affecting a company.
2) Control Cash Flow
Cash flow is king in a down economy. It is important to tighten your accounts receivable collection in order to improve cash flow. Extending payment terms with willing vendors will also help when cash is tight. An accountant can create cash flow statements for businesses, so that they can easily see how much cash has come in and how much has gone out and from what different sources.
3) Produce Accurate Financial Statements
Any business needs up to date financial statements, so quick decisions can be made. Having an accountant review and correct the accounting records will ensure accuracy. Having a correct balance sheet will show the liquidity and sustainability of that business. An accurate profit and loss statement shows how the business is currently doing.
4) Create a Budget
Working alongside an accountant to devise a budget will keep the business accountable. A budget will keep a company in line with their financial goals. Designing a budget will help determine where the business is going and what steps they will need to get there. Looking towards the future is important when devising a budget. Comparisons to similar businesses records and trends are important when devising a budget. Accountants can access this information and interpret the figures so they can be useful for the company budget.
5) Analyze Debt
It is important to re-analyze your business plan and determine the company’s risk tolerance to debt when implementing new plans and ideas. If a company has a lot of debt without liquid assets, this can cause a company to be over leveraged which makes it difficult to obtain financing or even the ability to pay off current debt. Your accountant can review loans to help determine if the company will be able to meet the terms and requirements associated to the financing.
During these difficult times, it is more important than ever for businesses to analyze their numbers to ensure survival. Working with an accountant can help businesses maintain financial stability to withstand this economic storm.