Running a successful business takes a lot of work. However, as it takes strong accounting to ensure steady growth and increased profitability, working with a good outsourced accountancy service makes sense.
From bookkeeping to benchmarking against competitors, successful accounting practices and processes can have a strong effect. However, it is essential that business owners understand at least the basics of their accounts.
By getting to grips with the most useful accounting information, more decisive and often more successful decisions can be made. Here are five top tips to ensure your outsourced accounting team gives you the information you need:
1. A clear and concise profit and loss report
A profit and loss (P&L) report should act as the number one tool for effectively managing your company’s profit.
It should be well designed and offer clarity in every area. In particular, a good P&L report will focus on the key variables which drive the performance of your profit streams. This allows trends to be identified, issues highlighted, and solutions made.
Correctly executed, a robust P&L report will essentially be a map, laying out the best course for you to take.
2. Noting the margin per unit
Key variables, which a strong P&L report will highlight, will all lead to where money moves throughout your firm. As such, it should be focused towards fixed expenses, margin, sales volume, and variable expenses.
The margin per unit is determined from the cost of the product, minus the sales price and expenses affecting the close of sale. Before you enter profit, the volume of your sales must equate to a total margin value, which is equal to the fixed expenses.
Once this point is reached, it’s all gross profit, but minor changes are significant. A small drop in the margin per unit will see the break-even point take longer to reach. Conversely, a small price increase could see quicker profits.
3. Understanding cost figure practicalities
The cost of a product or a service for your business to bring to market depends on a number of factors. Critical to this is the accounting method used.
Whether your costs are determined by a first-in, first-out (FIFO) method, a last-in, first-out (LIFO) method or something more arbitrary, will be significant. However, knowing how your costs have been calculated drives strategy and helps determine weakness and strength.
4. Controlling influence
Having strong controls internally is an essential component of any modern business, and good outsourced accountants can help design and implement this.
With the amount of data handled by firms today, together with the sheer flow of money, there are numerous opportunities for errors to occur. External and internal theft often presents itself too, which robust controls will mitigate, minimize, and nullify.
5. Taking charge
As much as it is sensible to engage with a competent outsourced accounting service, taking and retaining control of the relationship is important.
It is you and your business acumen responsible for identifying the business, growing the firm and developing it into what it is now. As such, it is important you fully understand the financial information provided.
By familiarising yourself with these five basics and ensuring a good accounting process, profit will be optimized.