When we think of bookkeeping and bookkeeping services we immediately think about software like Xero, MYOB, Quickbooks or Sage, to name a few, setting this up, arranging bank feeds and coding our transactions.
Once this is all set up and bank feeds arranged, we can commence to run our business with the software from invoicing our clients (customers), receipting their payments, managing staff timesheets, wages and superannuation, and using this information to do quarterly BAS lodgements with the ATO. For those who are a little more sophisticated, we can manage our suppliers, do purchase orders and track inventory.
This is all just admin work, stuff that must be done, and not the real power behind the various software or the true function of bookkeeping. Bookkeeping, if done correctly, is the powerhouse or engine behind truly managing, growing and making your business so much more efficient and profitable.
What can bookkeeping actually do for your business?
Track your supply orders so you know who your major suppliers are and how much you spend with them and how quickly you make payment to them. You can use this information to go back to them to negotiate better trade terms, from lower per unit sale costs to extended payment terms. Both of these will significantly improve your cash flow;
Track your major customers, how much they spend with you and how exposed your business is to one or a few major customers. It will enable you to drill down further into these larger customers to see if they truly represent real value to your business. Maybe they spend a lot with you but their marginal return is very small or they take up considerable time you could devote to more profitable customers who currently spend less.
Track your inventory, staff costs and overhead costs to your products or services so you know the real cost of manufacturing your product or providing your service which will help you in reviewing your customer pricing strategy. This information can then be provided to your marketing team to assist with pricing of your products and marketing strategies;
Enable you to undertake ratio analysis so you can compare yourself to your peers in your industry to see where you are in-front of your competitors and where you are lagging behind. Your ratios can be assessed against the freely available ATO industry standards to give you greater insights into how your business is doing over time and against your competitors.
Undertake Profit-Volume-Analysis, a tool that estimates how a business’s profits change as its sales volumes change, as well as determining break-even points.
Forecasting capital budgeting needs, what new equipment, when and how much will be required. Get your funding set up before hand to be able to make these purchases and capture more of the market;
Produce a detailed cash flow analysis incorporating “Source to Pay” and “Order to Cash”. Know if, or when, you are likely to have a cash flow issue and manage this beforehand.
Prepare real forward budgets based on all the information above and not just simple 10% increase on prior year figures most people do. You will have all the detailed information on your business to provide to your marketing team for their input on sales volume targets and what can be achieved. Use this with Profit-Volume-Analysis to see what it means for your business going forward. Finally;
Economic Value Added Analysis (“EVAA”). EVAA states in a formula something all us business owners know in our gut or think about. Could you make more money by selling your business and reinvesting the proceeds and getting a new job elsewhere? EVAA is not about telling you to sell your business but to help you better manage your business for your needs. You want to know if you are earning an economic profit by owning your own business.
Bookkeeping is the intimate knowledge of your business, it’s costs and profit margins, the management of your business and the ability to take this information to improve your business. Bookkeeping can be kept very simple to allow you to run your business or it can be used to inject real power into growing, improving and providing real Economic Value Add to you the business owner. We, at The Diligent Group Advisory Services, have a set of standards and procedures and the team to provide these services so that you can get this management insight to help you make better business decisions and shorten your growth timeframe or simply to improve your margins.