It’s almost the end of another financial year – well at least it is in Australia.
One of the opportunities which is often overlooked by business owners is the opportunity to review and restructure the chart of accounts in their accounting package.
Why would you want to do that, you ask?
Your management accounts are your ‘instrument panel’ for the business. They should be set up to provide you, the business owner, with the information you need to make informed decisions in your business.
Correctly set up, your accounts will tell you;
- what are your most profitable products and services (it may not be what you think)
- who are your most profitable clients (again, it may not be who you think)
- the lifetime value of your clients
- where the most profit dollars are coming from
- where your cash is going and what is eating up your profit
- where you can increase your profits
This is just a few of the many things you can learn from your financials – if they are setup correctly. You can create a dashboard so that you can make really good strategic decisions in your business. That’s part of my role working with my business owner clients. The first step is to get your “chart of accounts” structured correctly. Contact me if you need help or want a good bookkeeper to help you!
TIP: The start of a new financial year is a great point in time to start your new chart of accounts.
If you are preparing your business “ready for sale”, the profit and loss statements are crucial. Even if you intend to keep the business forever, and put it under management – YOU NEED TO KNOW YOUR NUMBERS! It’s easier to do this if you set up your chart of accounts to tell YOU, the business owner, what you need to know.
Make sure you identify different income streams – not just “Sales” or “Income”. Break it down into logical product or service lines. Track your cost of sales in the same way. Accounting packages these days allow you to assign product codes and associate costs to ‘project codes’. Make good use of the powerful features of the accounting package. Seek help from a good accountant or bookkeeper and if you don’t know one, just contact me.
ANOTHER TIP: If you ever want to sell the business, it makes it much easier to put a value on the business if you separate out items that can become add-backs. That is, such things as owner’s wages and super, subscriptions and memberships and anything which is discretionary and not part of the day-to-day operations. It also makes it much more attractive to a buyer and improves the likelihood of getting through due diligence quickly and painlessly.
AND YET ANOTHER TIP: “Build your business as if you are going to keep it forever, but could sell it tomorrow!”
The end of the financial year is a good opportunity for reviewing your business performance over the last year as well as setting strategies, goals, and plans for the coming year.
Want to know more about how I help business owners turn their business into valuable and saleable assets – complete the form below and download my MindMap and get access to a 5 minute video.