Accounting doesn’t have to be gobbledygook

Hamish Mexted Accounting & Compliance

We know numbers, accounting and tax can sound like gobbledygook.  However with a little bit of knowledge, and a Chartered Accountant that speaks your language, you’ll be able to use the information in your financial accounts to help you build a better business.

Three quick tips:

1. Debtor day calculation

Your accounts can tell you how long, on average, it takes your debtors (people who owe you money) to pay you.  By monitoring this number over time, you can see how changes to your debt collection policy impact your overall cashflow situation.

2. Stock turnover days

This calculation shows you how long, on average, stock sits on your shelves for.  Using this calculation you can see how changes to your stock purchasing pattern can impact your cashflow.

3. Sales per employee

By measuring how sales have increased as your staff headcount grows, you can establish the optimum number of staff members.  Together with other factors, this piece of information can help drive a fair chunk of your business plan, for example sales delivery strategy, premises size, internal reporting lines and more.

There’s a bunch of other ratios and percentages you can calculate to help you build a better business.  For example you could look to measure your gross profit and net profit margins, your advertising effectiveness, your wages percentage and more.  The first step is to measure and know what you’re looking at.  From there it’s how you use this information and what you do with it to improve your business.

We’re running a series of seminars early next year to help people come to grips with using their accounts to build their business.  Get in touch with us for dates and times.  Alternatively give your accountant a call and get them to work through your accounts with you, in more detail than ‘your sales were up and your phone bill was down…’