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Do You Know Your Accounts? – Some Questions Every Business Owner Should be Able to Answer

You would be surprised how often people who run or own a business cannot accurately answer some vital questions. We all like to think we know our business inside out but the people who runs SMEs usually need to wear several hats and spend most of the day multi-tasking and thinking on their feet. While this is part of the pleasure of running a business, it can easily result in ‘working in your business, not on your business’ and you lose track of the essentials.

Here are a few questions that you should be able to answer quickly and precisely. If you find reading this that you can’t, then I would suggest that it may be worth taking a few minutes out of your day to call us and we will help you re-acquaint yourself with an old friend… your business accounts.

Do you know your gross and net figures for last year and last quarter?

There is, as hopefully we all recognise, a big difference between net and gross. A balance sheet showing a big gross turnover may look impressive but if you are not turning a profit as well then it means nothing. In fact, if you are not making enough net income then that big gross turnover figure is probably running up a bigger financial problem.

How much are your biggest customers worth as net profit?

This is a very different question to the previous one. Where the first question looks at the overall position of your business, this one can help identify a very dangerous weakness. A seemingly good high value customer who takes a lot of your time and produces a low margin of profit is actually the opposite. As an example of how important this is, we often see businesses that were built on the owner taking an initial big contract to go freelance. While this gets you off the ground, over time, the resources spent on maintaining it can become a burden and impact your potential to expand. Knowing who your big customers are and what they are making you is something you should be intimately aware of.

What is your cashflow situation?

You must be able to clearly estimate your cashflow. Particularly when it comes to realistic assessment of your payments. What it says on the invoice as the due date and the actual payments are often very different.

What are your monthly fixed costs?

Costs are often the poor relation in the basic accounting family. Maybe it is because they are not as exciting as income, but you tend to hear and answer that starts with ‘ohhh, about, errr…’ when discussing outgoings than you do when discussing profit and turnover. You really need to know them, particularly if you hold stock or manufacture or they are variable.

Do you know what your tax payments will be?

This one should go without saying because we all know that HMRC are going to want their share at some point. You should have a very clear idea what that will be.

What are your financial goals and milestones for the coming year?

Everything so far has been about what has happened and where you are now. This question is one that you can use to define your business growth. Set goals and nominate specific milestones so you know when you reach (or don’t) reach them.

Knowing where you stand and where you are going should be the basic foundation of all your business decisions but in the constant push and pull of running your company it is easy to lose touch. At Northants Accounting we are always focused on making sure that no matter how complex or unique your business accounts get; you know exactly where you stand. Call us if you found yourself unable to answer any of these questions and we will look at ways you get you back on track with that most reliable of business advisors, your accounts.

Looking for a new accountant?

If you looking for some assistance with your accounting services, we’d love to hear from you. Call our friendly team now on 01604 330129.

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