In the running of a business, it is imperative to ensure that everything in the operating cycle runs smoothly. Doing so will allow for optimal returns and stellar results. Out of all the different aspects of a business, one that you most definitely have to pay close attention to is accounting.
Without proper accounting systems and the right practices, a business can go from being a potential million-dollar idea on the path to success to a wasted effort facing imminent failure. There are several telltale signs that indicate certain accounting failures. However, nothing is more telling than inaccurate financials.
Every professional bookkeeper is tasked with the production of accurate financial statements. These reports are crucial for the making of vital business decisions. Although the creation of financial statements is typically the responsibility of a bookkeeper, it is very much possible for any business owner to upgrade the process on their own.
To keep your business and its accounting system running at its best, here are a few simple, yet effective tips that you should employ:
#1: Choose the right accounting system
Best business practices dictate that accrual accounting systems are superior to cash systems when it comes to intensive operations—and this is true for all the right systems. Accrual systems are widely used because they perform better in matching expenses to revenue as compared to cash systems. It is also worth mentioning that the advantages of cash accounting can be merged with accrual systems, meaning that the latter is a versatile and high-performing system with everything you need. That said, it is also essential that you feed your systems the right information on time, as reporting revenue and associated expenses in separate periods can lead to shifts in profitability every month. By inputting the right information at the right time, it can be much easier to understand the true, real-time performance of your business.
#2: Make sure your accounting is accurate
The equation for an effective financial statement is simple:
Accurate accounting = Effective financial statements you can use
From selling expenses to overhead costs, there is a wide range of expenses to consider when ensuring accurate accounting. The best way to make sure that your accounting is accurate is to maintain effective principles and processes. Doing so will help you keep tabs on every number and ease the process of calculating financial metrics. It is essential to keep in mind that this step won’t be possible without the help of a professional accountant.
#3: Review everything line by line
Financial statements return various reports on the profitability of each product line (for product-based businesses) or job/client (for service businesses). Unbeknownst to most business owners, financial statements actually provide key information on what sales lead to unhampered gains and which ones incur more costs than they do profit. Ensuring that your business runs smoothly and profitably entails having to drop unprofitable work or products. Therefore, use your current financial statements to craft better ones in the future.
#4: Break up your financial statements according to accountability
A common problem that persists in many financial statements is the inclusion of revenues or costs that are attributed to the responsibility of a single manager. However, maximizing the power of a financial statement includes instilling accountability. Distributing the responsibility entails listing revenues and costs under the responsibility of a single manager. Every line item on your financial statement should be the responsibility of a single person. Not only will this reduce error, but it will be easier to track the source of performance pitfalls.
#5: Ensure that your financial statements are delivered on time
There’s no easier way to miss out on possible business opportunities than having a bookkeeper who submits financial statements one, two, or three months after the end of a period. Effective management decision-making heavily relies on fresh financial statements that contain essential data.
Financial statements are the backbone of every effective and thoroughly planned business decision. It is, therefore, essential to ensure that they are utilized as best as possible. As businesses in Canada continue to be more effective, the need for proper financial statement usage becomes even more important. By following these 5 effective financial statement tips that are used by professional bookkeepers, you can help your business run as profitably as possible.
We understand running a small business is complicated. Your financials shouldn’t be. Take the guesswork out of the accounting and let us help you build your blueprint for success.
Contact us today for your free assessment to find out how Blueprint Accounting can support your business.