| Accountancy is a mystery to many people and | | | | profit (or loss) when your accounts or tax return |
| no more than a necessary evil to lots of business | | | | are completed at the end of your financial year, it |
| owners. Yet understanding accounts is a | | | | may be too late to make any alteration to the |
| fundamental requirement for business success. | | | | way you run your business. In other words, you |
| After all, if you can't answer the question, 'Have I | | | | will only find out what you need to know in order |
| made a profit this month?', then how can pretend | | | | to change things when it may already be too late |
| to be managing your business? However | | | | to do anything! |
| wonderful your product or service, and however | | | | In addition to a profit and loss account, your |
| excellent your marketing, you have just got to | | | | business needs to produce a balance sheet. This is |
| have a grip on the numbers. | | | | an accountancy term for a snapshot of the |
| And not just any numbers too. I often hear | | | | businesses assets and liabilities at a particular |
| business owners pluck numbers out of the air | | | | moment in time. For small businesses, this is |
| when, on closer, inspection the reality is very | | | | maybe not so crucial to the day-to-day running of |
| different (and usually considerably less optimistic). | | | | the business but you should be aware of what |
| If you don't know the real numbers then your | | | | you owe who owes you what and for how long. |
| business is very likely to be in trouble even if - | | | | You also - and most crucially - must be aware of |
| maybe especially if - you are growing fast. | | | | your cash-flow. More businesses fail from lack of |
| Growing businesses tend to run out of cash very | | | | cash than anything else, even when they are |
| quickly if no one is checking that bills are being | | | | making profit. If you can't pay your rent because |
| paid on time! | | | | you have ordered too much stock, then you are |
| So here are the basics that you need to | | | | in trouble whatever your profitability. You |
| understand. Firstly, the fundamentals of your | | | | absolutely must collect cash promptly and take |
| profit and loss account. You need to know your | | | | swift action when customers delay payment. |
| turnover - how much you are selling; your direct | | | | So make sure you know your numbers. There is |
| costs - what you have to buy to make what you | | | | no excuse for ignoring this. Do some research on |
| sell; and your administrative expenses - staff, | | | | the Internet, buy a book, go on a course or talk |
| stationery, marketing etc. Turnover minus direct | | | | to your accountant. Even if you employ someone |
| costs gives you your gross profit. Take away | | | | else to enter the numbers for you, make sure |
| administrative expenses from this and you have | | | | you take time regularly (and at least monthly) to |
| your net profit. The latter is what gives you your | | | | review them with a view to making any |
| own money to spend at the end of the day. | | | | necessary changes to your costs or procedures. |
| You should know these figures every month, | | | | You just can't be a good business owner without |
| soon after the month ends. If you only know the | | | | knowing the numbers for yourself. |