Accounting is the Secret Language of Business!

Does your company prepare monthly financial information? Do they analyze and use the information to improve the company or their business? I am often surprised by the answers to this question!

So many companies wait for an outside professional to prepare this information quarterly or annually. They don't analyze

the information themselves in a timely manner, and by time the data has finally been produced, it's become irrelevant or obsolete!

Make certain to provide valuable, timely analysis in a manner that is easy to understand and act upon.

The Two Most Important Financial Statements

The two most important financial statements that every business owner needs to insure accuracy and understanding each month, are the Statement of Income and Retained Earnings (aka Income Statement or Profit and Loss Statement, P&L) and the Balance Sheet.

No business can be run without numbers, which serve as a sort of thermometer that measures the health and well-being of an enterprise. Numbers are symbols, very much like words, with their own intrinsic simple meanings when they stand alone and far more complex and meaningful when in the context of pertinent other numbers.

Almost every company has the ability, with the software they have, to produce their own financial statements. There is nothing unique or unusual about the importance of knowing your numbers. However, the difference between well-managed companies and not-so-well-managed ones is the degree of attention owners and senior managers pay to their numbers.

If you do not produce regular monthly financial reports for your business, you are flying blind. One critical mistake often made by new entrepreneurs is that they think they can save a few dollars by doing their own accounting without the expense of a professional accounting service.

The Primary Purpose of Monthly Financial Statements is Not to Serve as an IRS Form to Determine Your Tax Liability

The purpose is to be able to assess the effectiveness of the owner's decisions on the financial performance of their business. Every decision a business owner makes has financial implications. Adding or deleting a product or service, adding or eliminating an employee position, changing prices, giving an employee a raise and selecting new vendors all have financial implications.

Your goals should be to increase sales, reduce costs and increase profit. These are the objectives for any decision you make for your business. The bottom line is that if you do not know your numbers, you do not know your business.

The first and most important point about numbers is that they must be accurate and collected in a timely manner. Often times this is information your in-house group can do if trained properly. Better to spend the money on the outside professional to provide in-depth analysis and planning instead of preparing information that just sits in a file.

It seems that there are business owners who are "numbers people" and enjoy analyzing financials, and then there are those who are not and are uncomfortable with numbers.

Those who are not often defer collecting and recording numbers to someone else, and do not take the time to understand what the numbers are telling them. They may not review the balance sheet and income statement in a timely or consistent manner. Scheduling a monthly meeting to review these two financial statements is a good way to make sure you are using the information. Be sure to include your outside accountant or accounting team to review the information.

The detail needed by a business owner on their financial statements is just as important as than that needed by the IRS to determine tax liability. Initially, new businesses should retain the services of a professional accounting firm. The cost of this service is about 1 percent of your sales, and that is the best money you will ever spend.

When you have mastered the numbers, you will no longer be reading them any more than you read words when reading a book. You will be reading meanings! Your eyes may be seeing numbers, but your mind will be reading costs, market share, gross profits, prime costs, etc. All the things you are doing and planning will jump out at you, once you learn to read through the numbers.