Small Business Bookkeeping Information
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Often we come across valuable small business bookkeeping, tax or general business news or announcements that we include in our regular newsletters.
It is very important to monitor a wide range of “performance indicators” in your small business to ensure that appropriate decisions and plans can be made. Given that sales, profit margins and cash flow are very important factors of any business, owners should place particular importance on receiving regular reports on these areas of their business.
Knowing the financial position of the small business becomes even more important as the business grows, especially if your plan is to grow your business substantially. Lack of knowledge of the current financial position can lead to business failure and have other consequences for the directors and/or owners. This is why small business bookkeeping is so important.
FINANCIAL STATEMENTS
At the bare minimum financial information for any small business bookkeeper should be periodic financial statements consisting of at least a Balance Sheet and Profit and Loss Statement.
Businesses that provide credit to their customers also need to control their debtors through monthly aged debtor’s trial balances. Those who have a significant investment in stock should control that through inventory records. Regular debtor and inventory reports will help prevent too much of your capital being tied up in these areas and allows for prompt follow up action.
One disadvantage of financial statements is that they show the results of the business after the event and as such they are a lag indicator, but still very important.
If these financial statements are prepared solely on an annual basis there is a considerable lag. More frequent reporting periods are needed for more important data as well as use made of other financial and non-financial indicators. Examples are number of enquiries, number of customers per day, average sales value, number of quoted jobs lost, customer satisfaction and so on. A lot of these indicators can be monitored through a company website, that’s of course if you have one.
So for best results, financial statements and other key performance indicators should be prepared on a regular basis and compared with prior periods. Monitoring performance using successive monthly or quarterly accounts can show trends that otherwise might not be apparent.
For small business bookkeeping, the following are some important KPI’s that should be monitored:
Stock turnover – Days
These reflect the number of days that it takes to sell your inventory. The lower the ratio means the quicker the stock is sold.
Debtors turnover – Days
These reflect the average length of time from sale to cash collection. The lower the ratio means the quicker that accounts are paid. From a cash flow point of view, it is important to keep days outstanding to a minimum.
Return on investment
Represents the after-tax return that owners are receiving on their investment and should be compared with alternative forms of investment.
Gross profit margin
This is one of the most important bottom line indicators of the profitability of the business and reflects control over cost of sales and pricing policies. This ratio should be compared with prior periods and to any available industry data.
Break even sales
Reflects the sales that need to be generated in order to cover expenses. In lamens terms, this is the level of activity at which either a profit nor loss is incurred, or where total costs equate with total revenue. This is a very important ratio that every owner should monitor on a monthly basis.
To ensure that your small business bookkeeping is being done properly.
In addition, our team members and managers occasionally put pen to paper to share their experiences, expertise and observations that we believe will make a valuable contribution to our clients’ knowledge base.
Small business bookkeeping is our specialty and we look forward to looking after your small business, call Bookkeeping Pros today on 02 9411 1529
