Announcement about our new ecommerce package for all you etsy, ebay, Amazon, shopify (and the list goes on) businesses.
No, we're not going to tell you how to run your business, but we are going to discuss how financial data can help you make sound business decisions.
Do the words Profit & Loss report (P&L), Balance sheet, Budget, Forecast and Key Performance Indicators boggle your brain? Do you only look at your financial data when forced to by your accountant after the year end? Do you make important decisions without even considering the financial position of your business? Well stop!
Knowing how your business is performing throughout the year is extremely important, and this is where management accounts come in.
What are management accounts?
Management accounts is the blanket term used for a pack of financial information, provided regularly to you about your business. Usually these consist of at least a P&L and Balance sheet and are provided monthly or quarterly. However frequently they're prepared, the key is to receive them as quickly as possible after the end of the period to ensure that you are reviewing recent data.
What can be included in management accounts?
Profit & Loss account
This is a document which shows the performance of your business over a period of time. It summarises income, cost of sales and overheads and shows whether the company is profitable. Figures can be compared against previous periods or a budget.
This is a document which shows the position of your business at a point in time. It shows whether the company has more assets than liabilities on that date. If the net assets (assets less liabilities) are negative, you may have a problem and should speak to a good accountant as soon as you can.
This is a summary of the cash movements over a period of time. It will show how money has been received and spent and will detail the overall change in bank balance.
This is a best guess at what will happen to your cash over the next x number of months. It incorporates the actual position of the business at a point in time, and a budget of what is expected to happen in the future. The benefit of this report is that it highlights any issues the business may have with cashflow (or maybe where there is surplus cash which could be invested).
Graphs, formulae and commentary
Don't panic if the thought of all these numbers makes you want to bury your head in the sand. A good set of management accounts should cater to your specific needs. If you take in visual information best, the accounts should include graphs. Maybe you prefer to read a commentary, or get your head around formulae, then your accounts should incorporate these as well.
Don't forget that the main point of a set of management accounts is for them to be useful to you, the user.
Why use management accounts?
Firstly, management accounts help to give you that peace of mind that the business you're working so hard on is flourishing. Or the alternative, they highlight issues on a timely basis allowing you to ensure that decisions are made to keep the business afloat before it's too late.
Maybe you need to buy a new machine or fancy withdrawing an extra lump sum for that holiday of a life time. Having enough cash in the business account doesn't mean that it's the right decision to make. Management accounts allow you to work out whether you can afford that large cash outlay, whatever it's needed for.
Is funding required to progress the business to the next level, then you'll most likely need management accounts to obtain this.
There are a whole range of reasons that management accounts are useful. But the main reason is to keep you, the business owner, informed on a regular basis, so that you can do what's best for your business.
Want to know more?
Here at Lodestar we use Xero in conjunction with other Xero apps to prepare management accounts that work for your business. Get in touch with us to discuss how management accounts could benefit your business, giving you the visibility you need to make the right decisions for growth.
Lodestar Accounting celebrated our first birthday on 26th September 2017 with cake and a glass of wine, wondering where has that first year gone? As they say, time flies when you're having fun!
After reflecting on the first year in business, we've put together the top three things we have learned during our first year.
1. Organisation is key
There will be so many people to call, emails to respond to, bills to pay, phones to answer, the list goes on. How do you make sure you don't miss paying that all important bill or returning the call to that prospective customer? Organisation is key. Everyone will have different methods for organisation, it may be a written to do list, Google keep or post it notes around the house, the main point is that you need to have some form of organisation.
For me, my Google calendar is key. I have one for my Lodestar appointments and tasks, and one for home life, which is colour coded for each family member (geeky I know). Then I organise my inbox making sure that I can track important emails, things I'm waiting for responses on and lower priority internal emails. Finally, I couldn't live without our practice management software Senta which ensures I never miss any of our client's tasks.
Whatever your method, just ensure that you have some form of organisation.
2. There will never be enough time in the day
No matter what time you get up in the morning, or work until in the evening, there will never be enough time to do everything that needs to be done. And that's only thinking about business tasks, what about juggling family and social life alongside building your empire?
Fear not, every new business owner feels this way, well I certainly did. The way I combat this is to prioritise what needs to be done, looking at deadlines & importance. I like to ask myself 'Can it wait?' If the answer is yes, then I plan it in to my calendar for later in the week. If the answer is no, then it gets planned in for as soon as possible. Once I've worked out what can wait and what needs to be done now, I create a to do list for the day and work my way through it. If I complete all of it, great, I'll make myself a cuppa and bring some tasks forward from later in the week.
Most important of all, don't panic. Once panic sets in, we work less efficiently, meaning each of those tasks on the list takes longer to do and less will get done. If you feel overwhelmed, move away from the situation and take a breather. When you come back to your task, everything will seem clearer.
3. Get ready to feel like you know nothing
No one gets in to business to do the accounts (unless you're an accountant of course), but this is one of many tasks that become the responsibility of the owner along with marketing, IT, graphic design to name but a few. Each of these areas will most likely be new to you (they definitely were to me) and so everyday you'll feel like you're learning something new. A very fitting quote, which I read pretty much every day is 'Unless you try to do something beyond what you've already mastered, you will never grow'.
Obviously there are specialists who can assist with all of these tasks, but this comes at a cost and so the new business owner must decide between money and time/learning, prioritising which areas to spend money on in the first instance. Those tasks that you don't spend money on, you'll need to learn, so get your thinking caps on!
With all that said, even with the steep learning curves, long to do lists and early mornings/late evenings, the last 12 months have been the most rewarding of my career to date. I genuinely feel as though I'm helping guide small businesses through their finances and having a genuine impact on their day to day running. No longer do I have that Sunday evening feeling of dread, and I get to be around more for my young children. For me it's a win win and I can't wait for the next 12 months. Watch this space!
My first vlog! A brief overview of the benefits of reviewing your financial data more than once a year. Excuse the dodgy sound and the cat knocking the camera at the end! I promise my vlogging skills will improve!