Business accounting is a ‘Running the numbers game’. It’s not so much a game but it is about numbers. I know there are a lot of other things like quality, service and efficiency and so on, but if the numbers don’t stack up, then the other things don’t matter.
Accounting is a bit of a choir if you are not an accountant or at least have some grasp of the concepts. But if you are a business person you need to know what’s going on. First you are going to need to know how much turnover you are doing. Sales, that’s the start of it all. Who’s bought what, and who’s paid.
The next thing is what your business is costing you to operate. Sales are one thing, but if costs are too high or creeping up on you then you need to be on top of that right away. In that situation you have to look at a few things. Firstly you may have just got lax and not kept on top of costs, what you are paying people and what they are doing to earn you money. It could also be that your business is growing, and that takes money. You might be buying more fuel, purchasing equipment or having to bring on more staff. You may just of had a rent increase or some other cost has gone up. Whatever the case you need to be on top of it and respond.
Now you always have to be mindful of costs, you cant just let them run away on you un-managed, but if it is because your business is growing then you have to put your focus into growing sales, not cutting costs. That in itself is a cost, even if only in time and effort. It’s pretty much proven that it takes you five times as much effort to keep a customer than it does to get one. So getting a new customer might be easy and cost very little, especially if it is a referral, but the cost is yet to come. That’s where you really need to be on the ball, because, depending on the size of your business you may need to spend more time in your business trying to satisfy orders and so on, and forget about the value of your small business accountant. That’s when you can loose customers against investments you might have made to get them in the first place. The net result is, costs go up and sales go down.
If that happens then you are into an inefficiency cycle and you need to address that quickly. It may be a case of sitting down with your accountant and getting some advice, or looking closely at where you might make changes to how you operate. So, know what the numbers mean, know if they are what they should be and if not, what you have to do about it. Run the numbers game.