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11 Jun 2015
For most businesses the 2015 financial year is over and will soon be receiving their annual financial statements and tax returns. A number of business owners will just look at these accounts to see how much profit they have made and how much tax they have to pay.
However there is a lot more important information in the accounts, which can help you make some business decisions, but only if you know how to read them.
The problem with some accounts is that you need to be an accountant to understand them.
There's two ways to fix this: First, ask your accountant more questions. Remember that the accounts show the financial story of your business for the last year. People tend to jump to the end result or destination, but remember it also shows the journey of how you got there. The journey might identify improvements which could be made for future years.
The skill of an accountant is not in preparing the accounts and tax returns, which largely follows a standard procedure. The real skill is being able to explain to the business owner what the figures mean.
Second, improve your knowledge of financial reports. As part of our investment in local businesses, we are offering a free seminar to teach business owners how to read their accounts.
The sort of things you need to know, and will learn at our seminar, are:
I can hear some responses now: "I haven't got time, I'll never understand, it's not for me", etc.
All businesses have tough decisions to make, and in these situations a good understanding of your business numbers opens up opportunities for strategic business management. There's an old saying: "If you don't measure it, you can't manage it" and "If you can't understand it, why measure it?" So if want to manage, you need to understand it. If you don't understand it, ask for help.
It is important to remember that the financial statements are historic. They can be used to identify trends and try and predict the future. But even now the March 2015 accounts are already ten weeks old. What has happened over the last few weeks, and what is happening now is far more important to the financial health of your business.
Ideally your accounting software will be able to give you an up to date picture of the financial position of your business at any point of time. You should be reviewing the position at least monthly. If something was going off track, you need to know now, so you can make changes.
You should be reviewing monthly reports and understand what they show you about your business. There will typically be three or four key performance indicators (KPI) which are critical for your business. If you are unsure what these are for your business, then speak to your accountant or business adviser.
If you want to understand your business accounts or learn about KPI's join us at our free seminar in Kaitaia on Wednesday 24 June @5.30pm. Call Debbie on 4089366 to confirm your place.
"If you don't measure it, you can't manage it" "If you can't understand it, why measure it?"
For more information on how we can help your business, get in touch