Tag: profit

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7 signs that your business is leaking profit

7 signs that your business is leaking profit

.....and you need to hire an accountant

7 signs that your business is leaking profits and you need to hire an accountant.  

Accountants play an important role at various stages of the growth of your business. They can handle much more than just your payroll and tax returns. So, when should you consider hiring an accountant for your small business? 

Once you decide to start a small business of your own, you have to ensure all of its financial records are accurate. Unfortunately, being too frugal by trying to sort out your small business’s finances might most likely prove to be a costly mistake later and cause you to close shop. 

So you should observe if your business already exhibits these seven signs that it needs expert help now: Top 7 things to outsource now 

1) You are neglecting core business activities. 

At the start of a business you will probably “bootstrap” it, wearing every hat in the business to keep costs down. However, you need to question your ability and what your time is worth. If you value your time at £150 per hour and it takes you 10 hours a month to complete your accounts, that is £1,500 a month you are spending on completing the accounts.  

It is likely that an accountant may cost less than this and produce a more reliable result. Also, you can then use that time saved to go and generate £1,500 of revenue or more! You will be more focussed on the core revenue generating business rather than distracted with the accounts.  

This sort of simple calculation might be a sign that the cost of hiring an accountant is well worth it. 

You could consider outsourcing other tasks too such as marketing, your website, whatever you are not an expert at. For further ideas check out this blog on 8 things to outsource in your business:  

2) Your business is experiencing rapid growth 

Your business is growing, customers numbers are increasing steadily but do you have the right foundations for growth? At the beginning it makes financial sense to do everything yourself but as the business grows, things start to slip through the net, now is the time to seek outside help. 

More customers, more sales equals more paperwork and number crunching. It is helpful to have someone on board whose sole focus is on keeping the finances accurate but also keeping a track of your current growth and providing professional insight for growth in the future.  

Here is a blog on successfully growing your business: Successful growth 

3) You are not taking the salary/rewards you were expecting 

Are your currently taking a salary from the business? On top of that are you taking dividends – your reward for all the hard work and risks you have taken in building your own business. If not, is this because you are not making enough profit or is it because you don’t know your cash position and are unsure if you can afford to take money from the business?  

Most businesses fail due to poor cash management, so now is the time to concentrate on your cash position. You will need to look at the future ups and downs so you can make smart decisions with regards to your business. Look at this blog: Importance of Statement of Cash flow 

4) Not getting the right financial information 

Can you trust your data? You may have an accounting system in place but is it providing accurate, up-to-date information that you can make sound business decisions on? Are you able to use the data for scenario planning (what-if x happens), to help you decide if to take on that extra member of staff? 

You may also want to measure key business metrics, such as the ratio of salaries and other employee payments to total revenue. An accountant can help here by managing your payroll and producing graphs so you can see how the ratio changes over time. 

A blog on why a virtual finance director can help your business: What is a VFD and how it can one help you? 

5) Revenue is on the up, but profits are not 

You have worked hard, sales are streaming in, but you are still not making a profit. This is can be common in business as owners are so excited about making a sale, they accept any price with whatever terms and conditions the customers want. If you do not have an agreed progress for pricing a product or service, you are susceptible to this. It is more likely that you will be negotiated down and devalue your service/product.  

It is important to look at the lifetime value of a customer and take action with those customers that are in real terms costing you more than they are making you.  

6) You need to raise money 

If your business is at a point where you’re looking for loans or investors, your company’s financial history will be a key portion of the loan application or investor proposal. 
 

You’ll want reports and financial forecasting that are professional and provide all of the relevant information, and an accountant can ensure you’re not missing any critical pieces or parts. 

7) You’ll need advice when you write a business plan 

Do you have a business plan or is in hidden away in a drawer never to be seen again? An accountant will help you to make the most of a business, looking at real numbers which you can track you process against. A business plan will give you focus and direction for the business.  

Hiring a professional at this early stage will mean you get the benefit of their financial knowledge and advice right from the start. That could save you time and money compared with hiring one later. 

Make your business a success 

The truth is tapping into the expertise offered by a financial professional might be one of the most effective decisions you could make for your company. Your accountant can provide recommendations that will propel your business efforts forward and help you reach higher levels of success. 

We charge on a monthly basis and whether you take you seek help now or after the year end, the cost will largely be the same. However, by investing at the start, we will be able to ensure you are accounting correctly, have valuable information on a monthly basis, have monthly support, and ensure that you are operating in the most efficient way. Whereas if you hire an accountant after the date, they will be not able to help you make tax efficient decisions and if they need to fix past mistakes, it will cost more to correct these.  

 

Accountants can help you every step of the way 

As you can see, accountants can help you out during every stage of your company’s development. That doesn’t mean you have to hire one, but the right accountant should make life easier for you, so you can concentrate on what you love doing. 

Your speciality is running your business. Leave the financial detail to an accountant. A Virtual Finance Director is particularly suited to forward-thinking start-ups and established businesses where financial expertise is the best way to assist its continued growth. 

Is the time right you for to get an accountant and get focussed on your business? Book a discovery call today and find out how Southbourne Accountancy & Business Services can help you. Our service ranges from monthly or quarterly board views to management reports, our aim is to match the level of support with your business needs. This support can be flexed as an when needed. 

 

2. Download our free guide on “7 mistakes to fix, to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/ 

3. Download the “32 ways to extract cash from your business” Here 

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Business tips Finance Function

Understanding your profit and loss statement

Understanding your profit and loss statement

Your profit and loss statement (P&L) helps you understand your business performance and profitability over time. It’s sometimes called an Income statement and its main purpose is to list income and expenditure. 

Whereas a balance sheet is a snapshot in time, the P&L shows transactions over a specific period of time. This can be a month, quarter, financial year or any other period, and it can be a stand-alone report or a comparative period report. 

Together with the balance sheet, these two reports provide a comprehensive understanding of the financial position and performance of a business. 

The profit and loss statement has two main sections: income and expenses. 

All P&Ls are based on a very simple formula 

Sales – costs = profit (or loss)  

One of the most common reasons small businesses start producing profit and loss statements is to show banks and investors how profitable their business is. 

Depending on the complexity of the business and reporting requirements you will generally see the below: 

  1. Income or Revenue 

  1. Income primarily includes main business activities such as sale of goods or services. Other income such as interest received, capital gains or income from secondary business activities is also reported. 

  1. Expenses 

  1. Expenses are usually divided into two sections: direct costs, or cost of goods sold, and expenses. Cost of goods are those that are directly linked to the provision of services or sale of goods. For example, if you buy weights from a wholesaler and sell them at a marked-up value, the cost of the weights is a direct cost, not an overhead expense. 

  1. Other types of direct costs might be importing and freight costs, contractor costs or certain equipment. Some direct costs are fixed, that is, they are the same from month to month, or they could be a fixed percentage of sales; others vary in value but are still related to the income producing activities. 

  1. Overhead expenses are all the other expenses required to run the business, regardless of the level of income: for example, rent, utilities, bank fees, accountant fees, professional development costs, vehicle costs and staff costs. Many of these costs form the basis of working out your break-even point, or how much it costs just to open the doors for business. 

  1. There are some expenses which may be reported as a direct cost in one business but an indirect cost in another type of business, for example, merchant fees or contractor costs. 

The Bottom Line 

Total income minus total expenses results in the net profit (or loss), is often called ‘the bottom line’. Often business owners are just interested in looking at the bottom line, but a true financial picture requires an understanding of several reports and an ability to see the big picture that the reports are illustrating. 

The P&L is a vital tool to analyse for trends over time. 

  1. What does your P&L tell you about relationships and ratios between sales and expenses, seasonal changes and annual trends? 
  2. Have all your direct costs been allocated correctly? 
  3. Have you recouped all billable expenses from customers? 

Percentages you can use to help distill the information in your income statement  

A profit margin shows you the relationship between how much you spend, and how much you make, so you get an overview of your company’s financial performance. Lenders and investors look at your profit margins to see how profitable your company is, and decide whether to give you money. 

The three most important profit margins are: The gross profit margin, the operating profit margin, and the net profit margin. I will cover these in a later blog.  

Financial statements help you understand the big picture for your business. With deeper understanding of your business operations and performance you can make informed decisions about your business finances. 

Are you confident in reading your profit and loss statement? Would you like to know more about the relationship between costs and revenue to make better business decisions? Book a session today to examine your financial reports with an experienced business advisor. 

 

1. Book a call with me: https://debbiebaileymoney.co.uk//contact-us/

2. Download our free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://debbiebaileymoney.co.uk//fitness-ebook/

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