Accounting
for Growth
Annual accounts are such a chore.
Corporation Tax to pay, Companies House deadlines
to satisfy and if your turnover is big enough the
burden of an audit to worry about. What’s more, despite
having worked harder and harder all year the accounts
seem to indicate that very little profit has been
made. As for the accountant, well you didn’t
understand a word he said.
“Business is simple”
Al Dunlap, the American business leader said this.
It isn’t strictly true but if you can break
your business down into manageable units it is
easy to see what is good about your business and
what is bad. It has been proven time and again
that for most businesses 80% of its profits come
from 20% of its customers.
Whilst annual accounts don’t that level
of detail they do give an opportunity to review
the performance for the year and the reasons why
it was better or worse than previous years. This
means that when you aim to grow the business you
will be able to identify growth opportunities that
are profitable. Remember, turnover is vanity and
profit is sanity.
Where has it all gone?
Sometimes the answer the reason for a poor year
is simply that your overheads are too high. Your
accountant is in an excellent position to compare
the way you do things with the way other businesses
operate. Has your business changed the way it operates
in recent years? If not, have you been overtaken
by competitors operating from a much lower overhead
base? Incurring overheads should be considered
an investment – each cost you incur should
have the effect of earning you more than it costs
you. Can all your costs be justified on this basis?
For growing businesses, a healthy profit and loss
account does not always represent a healthy bank
balance. Profit is often tied up in working capital
(debtors, stock and Work In Progress) or required
for investment in capital equipment. Your accountant
should be able to help you understand the relationship
between profit and cash a little better.
If you want the accounts to give a more detailed
picture of where you are going you need to be involved.
Discuss what it is you really want to know about
your business with your accountant and you may
get more feedback than you expected Once you realise
that end of year accounts aren’t just about
the tax bill you might find it is the best opportunity
of the year to give the business some direction.
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