The difference between monthly accounting and yearly accounting is sometimes referred to as ‘management accounts’. When someone gets management accounts regularly, they get full accounts for a period of time. These can be prepared by an in-house bookkeeper or an outsourced bookkeeper or management accountant.
Knowing what level your bookkeeping is done to is important. Always ask your accountant for feedback at a year end for improvements you can make to your record keeping (if any). Saving time for an accountant, may also save you money.
Management accounts should be prepared accurately (no big changes at year end) and they should be on a timely basis (prepared close to month end), so you know where you stand very quickly if things turn.
The benefit of receiving good quality bookkeeping regularly is you are always informed. When things are going well, you can see the benefits of what is working really quickly and if things don’t go so well, you have this information to hand very quickly, so you can hopefully take corrective action immediately.
LOOK AT THINGS DIFFERENTLY
Rather than preparing only year end accounts with your accountant in a standard format, you could chose to look at your profit and loss by income stream or type of client. Most businesses have more than one type of income and client work. You may have heard other entrepreneurs talking about ‘ideal client work’.
Defining your ideal client should be based on profitability.
Many businesses don’t review their numbers in a high level of detail each month or even each year. They simply move to the next accounting period. This means they miss out on understanding where their profit levels are coming from.
Breaking out your accounts by income stream can be done easily with the help of an accountant or bookkeeper. Next, you review all the expenses and allocate them to their income source also. You may have overheads you believe are ‘across’ the full business, but look at these closely. I’ve found that some businesses allocated the directors time across the business, when in reality, much of their time was spent on one part of the business more than another. This can greatly affect the bottom line for each part of the business.
The main aim of this exercise is to understand what parts of your business are producing more profit level than others, so you can then use these numbers to decide which part of the business you want to focus on growing in the coming months.
Without doing this exercise and deciding to grow the business, it has happened that while turnover increases, the net profit of the business didn’t improve at all. Many SME owners spend a lot more time in their business than 9 to 5 and yet growing, being busier and yet not having the financial rewards at the end of the year, is tough.
Many are left frustrated and annoyed. This can be avoided by using your company financials to dig deep. Use them to fully understand what’s going well and what is the lower profit margin type of sales. If you have to perform these tasks or sell these products as part of your offering, you decide that you won’t grow this area of your business. This will tick along with some attention but focus your attention on the highest value of use for your time.