As a business owner, it’s helpful to have an understanding of accounting and your key metrics – but in the post-lockdown world, it’s vital.
The world has been changed by the impact of coronavirus, so your business is facing a ‘new normal’. Priorities have altered, customer behaviours mutated, and revenue streams have had to evolve in order to create viable business models.
Getting to grips with your financial reports
Whereas in the past, extra cash in the business may have been seen as a surplus that could be spent, COVID-19 has shown us that having these reserves is vitally important for the survival and long-term health of businesses.
To truly be in control of this cash, it’s essential that you can dip into your accounts, reports and dashboards and ‘see the genuine story’ behind your financial position.
So, what reports do you need to focus on?
- Budget – this is the financial plan that is part of your strategic business plan. In essence, it is your best estimate of the money needed to achieve your key strategic goals, and the income and profits you hope to make. It’s a benchmark you can compare your actual numbers against, allowing you to see the variances, gaps and missed targets over a given period.
- Cashflow Statement – this illustrates the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, aiming for a ‘positive position’ – where inflows outweigh outflows. In this ideal scenario, your business has enough accessible cash to cover costs, fund your operations and generate a profit.
- Cashflow Forecast – forecasting allows you to take your historic results and project them forward. As such, you can see where the holes may appear next week or next month – and that gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices or going to lenders for additional funding.
- Balance Sheet – this shows you the company’s assets, liabilities and equity at a given point in time. It’s a snapshot of what the business owns, what you owe to other people and what money and profits you currently have invested in the company. The balance sheet is useful for seeing what stock and equipment the business owns, how much debt you have and what the company is actually worth – very useful information to have at your fingertips when making big business decisions.
- Profit & Loss – this is an overview of the company’s revenues, costs and expenses. Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out (rather than cash coming in and going out, as you see in the cashflow statement or forecast).
Talk to me about accounting and financial reporting for your business
I’ll run you through your key numbers and can help you track performance, take action and prepare your company for surviving the new business normal.
You can contact me, Julia Leask, The Number Hunter at:
Tel: 01926-298829
Mob: 07855-275099
julia@leaskas.co.uk
