The advantages of doing the bookeeping in house and using accounting software to prepare regular financial statements can far outweigh the administrative burden.
Big business invests millions in sophisticated accounting software and financial control systems because financial management is seen as a key to financial success. These advantages are overlook these areas using personal knowledge but not always even that.
Medium and large businesses invariably employ teams of accounts clerks, bookkeepers, accountants, credit and cost controllers to manage the company finances using accounting software? The answer is simple. Detailed strong disciplined financial control is essential to protecting the financial health of the business and providing the financial framework to produce higher profit growth year after year.
All business functions are important for business success. While production and operational areas of the business produce the products and the sales function gets the products out of the front door it is the accounting function that has the framework to value this important work and grow the net profit.
Regardless of whether a small business maintains a manual system of bookkeeping to record financial transactions or uses an accounting software package it is important that regular monthly accounts are prepared. Reviewing the financial accounts and examining where improvements can be made can grow the profitability of the business.
By producing monthly accounts that show the sales turnover preferably analysed by product type or source of sales the effectiveness of the sales campaign is measured in real money. These types of financial statenments can identify where marketing and sales can be more effective. Putting real numbers to a sales analysis introduces a more scientific approach to dealing with the financial facts.
Accounting software produces a gross profit margin the business is earning on its products. A small business when presented with the profit percentages can make decisions to increase sales prices where possible to increase the profit or reduce cost of sales as appropriate. The gross profit margin is vital to the business finances and analysing the margin to identify areas where it can be increased can significantly improve profit performance.
A profit and loss account shows the operating costs of the business each month. Reviewing the monthly trends produced by the accounting software will often show some categories of expenses going up and some going down. Critical review of costs can maintain financial control and improve the financial performance.
The gross profit margin is critical in terms of size and volume compared with fixed overheads and a break even analysis can be highly indicative. By using accounting software to produce a monthly profit and loss account the business management can immediately see and understand if that gross profit is sufficient. Action should follow.
A major advantage of keeping actual current accounting records indicates the management action required to increase the profitabliity. The result can assist identifying items to imporve such as sales turnover and gross profit margins by increasing selling prices, lowering direct costs or reducing other fixed business operating costs.
Using financial records from previous accounting periods and comparing with the present financial figures can raise u8seful questions. Asking these questions of the financial accounts can throw up sales areas not being fully exploited, areas where margins can be increased and wasteful expenditure reduced. Accounting software with the detailed analsyis it brings can be used to better financial control and improve net profits.
