Ten Accounting Questions That Will Reveal Hidden Riches in Your Small Business
Do you have a customized accounting or bookkeeping system? Take This Quiz:
Can you answer these 10 questions about your business?
- Were my total sales up or down last month? And where they designated by category?
- What was my total gross profit last month? And was it designated by sales category?
- What is my gross profit per item?
- What were my expenses by category last month?
- Who owes me money and how much?
- Who’s behind in paying me and by how much?
- How much inventory do I have, in total and by item?
- To whom do I owe money and how much?
- What was my profit last month?
- How much do I OWN, and how much do I OWE?
Were my total sales up or down last month? And were they designated by sales category?
You need to know: If your sales are up, you’ll need extra cash to buy replacement inventory. If your sales are down, you’ll want to pull back on inventory purchases. Sales increases in a category can indicate a new growth opportunity. Sales decreases need to be investigated to determine the reason for the loss.
What was my total gross profit last month? And was it designated by sales category?
You need to know: Gross profit shows the profit remaining from sales after subtracting the cost of the products and/or services you sold. Changes in gross profit indicate whether or not your pricing strategies are working. Cutting prices to increase sales can hurt you if it reduces your gross profit.
What is my gross profit per item?
You need to know: Pricing should be based on profit goals rather than simple conjecture. By raising the prices on some items and selling others near or below cost, you can change your inventory mix and increase gross profits. An increase of just 1% may add thousands of dollars to net profits. You can give sales incentives that will cause employees to sell the most profitable items instead of the easiest ones.
What were my expenses by category last month?
You need to know: Are payroll costs too high? What about other costs, such as insurance and utilities? In order to cut back on expenses, you must first know which costs are excessive. Also, recording your expenses each month ensures that you get the maximum tax deductions.
Who owes me money and how much?
You need to know: You can’t expect to get paid in full unless you tell customers exactly what they owe. An itemized, neatly printed, and up-to-date monthly statement tells customers that you expect to be paid on time and according to your payment terms.
Who’s behind in paying me and by how much?
You need to know: Customers who fall behind need to be contacted immediately and continuously so that it doesn’t become a habit. Also, before you approve a new order from a customer, you’ll want to know if that customer paid you on time for the last one.
How much inventory do I have: in total and by item?
You need to know: If you’re running low on an item, you can reorder in advance and never run out. Plus, you can avoid rush delivery charges. If you have too much of one item, or too much inventory in general, you can cut back on your inventory investment. Also, you can compare a physical count with the books and identify a shortage before it threatens to put you out of business.
To whom do I owe money and how much?
You need to know: Many vendors offer discounts for paying bills in less than 30 days, which can add up to big savings on an annual basis. Paying your bills on time will also increase your chances of qualifying for business credit. Plus, you can plan for your cash requirements and reduce the need to borrow from your own funds or a bank.
What was my profit last month?
You need to know: A monthly profit figure gives you the financial bottom line and lets you know where you’ve been and where you’re going. Plus, you can save thousands of dollars on year-end tax return fees and plan for taxes in advance.
How much do I OWN, and how much do I OWE?
You need to know: Keeping track of your current assets and liabilities allows you to plan for your cash needs and helps you stay in compliance with loan agreements. Plus, you’ll be ready to respond to questions on demand from suppliers or potential customers.
In today’s competitive environment, information is power! You need to continuously ask yourself these questions. As you do, you will uncover a goldmine of profit-building information as you assess your financial standing, and when used properly, this information can help you better plan for your business’s success.
Call today for a free consultation. There is absolutely no obligation of any kind.
It will be well worth your time!