Understanding your finances is a vital part of running your business.

But getting down into the nitty gritty of the company accounts isn’t every entrepreneur’s top skill. If you are new to company accounting, or simply want to expand your knowledge, we can help explain the foundational reports.

The profit and loss report and the balance sheet are both key reports when it comes to getting in control of your company’s financial health.

What’s a profit and loss statement?

Your profit and loss statement are commonly called your P&L, but is also referred to as your income statement or statement of earnings. It’s a full breakdown of your company’s revenue (money coming into the company as sales and other business income) and your expenditure (direct costs, overheads, expenses and other costs).

As a business, you obviously want to turn a profit and make money from your venture. Careful observation of your P&L allows you to track your revenues and expenses over a set period of time. You can then look back over the period and see exactly where you’re making money, and where you’re losing money. The more you make, and the less you lose, the greater your profits will be at year-end – and your P&L is your barometer for measuring these metrics.

The P&L statement is good for:

• • Giving you a breakdown of all revenues and relevant costs and expenses
  • Showing the profit and loss figures over a set period
  • Summing up your profit and loss for the period to gauge if you’re profitable.

What’s the balance sheet?

The balance sheet gives you a snapshot of your company’s financial health at a given point in time, based on the following accounting equation: ‘Equity = Assets – Liabilities’

The balance sheet shows you the company’s:

• • Assets (the things the company owns, including cash)
  • Liabilities (the things the company owes other people)
  • Equity (retained earnings plus the funds you originally invested as shareholders)

Unlike the P&L – which shows you the revenues and expenditure over the course of a given historic period – the balance sheet is best seen as a ‘screenshot’ of your current finances. In a nutshell, it shows you what the company is worth on paper right now, based on the current numbers in your accounts. So, it’s a vital tool in your accounting toolbox.

The balance sheet is helpful for:

• • Assessing the current financial position of the company
  • Providing evidence of your financial position to banks, lenders and investors
  • Giving potential buyers an idea of the company’s tangible net asset value, if you plan to sell up.

Talk to us about expanding your accounting skills

If you don’t know your assets from your equity, we don’t blame you. Accounting can be complicated, and it takes time to fully grasp all the different terms and processes.

But if you’d like to know more about the basics of your company accounts, we can help. We’ll be happy to run you through your latest management or statutory accounts and explain exactly what each report means – and how it reflects your current performance as a business.

The following content was originally published by BOMA. We have updated some of this article for our readers.

For centuries, accounting was all about reviewing historic information – but that only told you about the past, not what was going to happen in the future.

If you’re only looking back at past periods and historic numbers, this limits the insights you can achieve for your business. With a backward-looking ideology, it becomes difficult to plan, run through different scenarios or understand the path of the business going forwards.

Forecasting changes this. With the right data analysis and forecasting tools, you can project sales, cash, revenue and profits into the future – and get in control of your business.

A forward-looking view of your business journey

Forecasting switches the focus of your financial management. By moving to a forward-looking view of your business journey, you can see further down the road – and that helps to spot any opportunities and avoid common business pitfalls.

Forecasting adds value by:

• • Highlighting the data patterns – a forecasting tool takes your historic data and projects it forward in time. This helps you and your advisers spot patterns, trends, gaps and opportunities, revealing the true ‘story’ behind your business accounts. For example, forecasting may reveal a predicted seasonal slump in the next quarter, allowing you to plan ahead and proactively take action to minimize negative impacts.
  • Giving you a future view of your business – instinctively, business owners will look back at prior periods to assess performance. There’s value to reviewing your historic actuals, of course, but using forecasting helps you to look forward, rather than just backwards. Forecasting is the satnav, showing you the road ahead, rather than the rear-view mirror showing you the road you’ve already travelled.
  • Helping you scenario-plan – with a financial model of your key drivers, combined with accurate forecasting, you can quick answer your burning ‘What if…?’ questions. Forecasting lets you run different scenarios, with different drivers, to see how business decisions may pan out over time. If option B performs better than option A, that’s invaluable information when defining your next strategic move.
  • Making informed, evidence-based decisions – having ‘the full picture’ of combined historic numbers, forecasts and longer-term projections aides your business decision-making. Forecasting gives you solid evidence on which to base your strategy and helps to red flag any threats that are looming on the horizon – giving you the best possible information to keep your executive team informed and on the ball.
  • A deeper relationship with your accountant – forecasting also helps us to get a far more granular view of your business. This helps to spot potential areas of performance improvement, and to give you the best possible strategic advice, all backed up by solid, empirical data and management information.

Talk to us about the benefits of forecasting

If you want to get in control of the destiny and results of your company, come and talk to us. Forecasting helps you highlight your future threats and opportunities – and create a proactive strategy to improve the performance of your business.

The following content was originally published by BOMA. We have updated some of this article for our readers.

At the early stages of your start-up journey, access to credit can be a lifesaver.

Cashflow is tight, customer revenue can fluctuate wildly, and large-scale bank loans and external funding may be in short supply. In this situation it might seem counterproductive to apply for a business credit card – a move that adds to your debt level.

But, in fact, applying for a company credit card and using that credit facility responsibly can have a hugely positive effect on your ability to fund your growth and access lines of credit.

Let’s explore five ways that a business credit card can improve your funding

1. Builds up your business credit profile

When you use a business credit card responsibly, and pay off the repayments each month, this starts to build up a credit history for the company. This credit profile is directly linked to your business and is separate from your own personal credit.

Having this credit history (and the associated business credit score) is crucial when applying for business loans and accessing future, large credit lines.

2. Establishes you as a responsible borrower

Paying your credit card bill on time each month demonstrates your financial discipline and an ability to manage debt in a responsible way.

When applying for loans, bank overdrafts and trade credit, lenders want to know that you’re a low-risk business to lend to. Responsible payment behavior acts as an indicator of trustworthiness for future borrowing and will increase your chances of successful funding.

3. Provides a flexible line of credit

Having a business credit card makes it easier to cover your expenses and overheads.

A credit card gives you flexible, accessible funds for your day-to-day operational needs. It’s also an excellent way to cover any unexpected expenses or cashflow gaps. Managing this line of credit also prepares you for larger, more formal, credit facilities.

4. Demonstrates a prudent use of credit

Your credit utilization rate is a key metric that credit reporting agencies will be interested in.

By not maxing out the available credit on your credit card, and keeping utilization low, you can show that your business manages debt in a sensible way. This marks you out as a low-risk borrower – a key factor in accessing further credit, business finance and investment.

5. Acts as a gateway to more favorable terms

By being responsible with your credit use, you set the foundations for a business credit profile.

A solid track record with a business credit card may lead to pre-approved offers for larger credit lines, better interest rates and more flexible terms from banks. This is incredibly helpful as you scale the business and need additional funding to drive your growth journey.

If your startup needs an increased cash runway and improved access to credit, applying for a business credit card is an excellent way to improve your financial flexibility.

Come and talk to the team about ways to embrace this kind of credit.

The following content was originally published by BOMA. We have updated some of this article for our readers.

The new financial year is a new beginning.

As a business owner this a great time for you to reflect on where you are at and think about your business goals for the financial year ahead.

Setting goals is an essential part of personal and professional growth. These could be lofty goals or even setting out a plan to achieve some more mundane (but equally important) projects. Whether that is getting paid faster, reassessing expenses or bigger things like automation of processes and new markets. You may be looking to expand your business or create more time for yourself.

Having a clear vision and actionable goals can help you achieve your long-term plans. Here are some tips to get you started:

1. Envision your future: Reflect on what you truly want from your life and how your business can help you achieve those aspirations. Consider where you want your business to be in the next five or ten years. Having a clear endpoint in mind will make it easier to set goals that align with your vision.
2. Set measurable goals: Vague goals can be challenging to track and evaluate. Instead, focus on setting goals that are measurable. Think about the key metrics you already monitor in your business and how you would like to see them improve. For example, aim for a 3% increase in net profit year-on-year, a 2% reduction in expenses, or acquiring two new customers per month or grow your prospect database by 50%. If you set specific targets, you can easily track your progress and make adjustments as needed.
3. Develop a plan for each goal: Once you have identified your goals, it’s crucial to create a plan of action to achieve them. This can be as simple as jotting down your ideas or engaging in a brainstorming session with your team or advisors. Having a well-defined plan in place will help you stay focused and motivated to follow through.
4. Monitor your progress regularly: It’s essential to regularly check in on your progress towards your goals. Set reminders on your calendar or align your monitoring process with your invoicing cycle. By consistently evaluating your progress, you can identify any areas that need improvement or come up with fresh ideas to help you reach your targets.
5. Celebrate your achievements: Celebrating milestones along the way is crucial for maintaining motivation and momentum. Plan a reward for yourself when you achieve a significant goal. It could be treating the team to a morning tea, having a day out of the office together or planning an event for the end of the year. Choose something that brings you joy without breaking the bank.

Not sure how to get started?

We can help you with the strategy and identifying the information you’ll need to track, so you can monitor your progress.

Setting goals is just the first step. By implementing these tips and staying committed to your vision, you can turn your long-term plans into reality.

The following content was originally published by BOMA. We have updated some of this article for our readers.

As the owner of the business, you’ve set your company up so it delivers on your own personal goals.

But you also want the business to deliver for the people you hand the business on to – whether that’s your kids, your management team, or a brand-new buyer.

Let’s take a look at how you pass the business on to the next generation, and the key steps to plan for, consider and get in place before you exit the company.

Getting the business ready to hand over

When you pass the business to your successor, you’ll want to do so with the company in the best possible shape. No successor is going to want to take on a failing business that has operational issues and little or no future in the current market.

Here are five steps to action before your planned exit date:

1. Start adding value to the business:

A big part of getting ready is about optimising the business so it’s a viable and profitable enterprise to hand on. Adding value to the business is key to creating a business you’re proud to hand over to the next generation – but it takes time and plenty of planning.

Invest in new systems, machinery and property, so the business is efficient, productive and able to remain competitive. Do the same with your human talent by hiring in the best people and making sure you have a team that’s ready to take over the reins.

2. Develop a succession plan:

Choose your successor(s) well in advance, whether it’s a family member, someone from your top team or a new, external hire. And put together a detailed succession plan.

Mentor your successor and provide training and development to get them up to speed with your strategy, internal processes and overall brand. Set a timeline for transitioning your leadership and operational responsibilities over in as smooth a way as possible.

3. Formalise your valuation and deal structure:

It’s a good idea to get an independent business valuation early on. This helps you set a fair price for the company and start the wheels in motion for the sale of the business.

Work with a broker or a mergers & acquisitions adviser to define the deal structure, whether it’s a gradual sale, staged payments, or gifting the company to your successor. Being clear about the deal helps keep all parties happy and limits any issues further down the line.

4. Address any legal and tax implications:

You’ll need to engage both legal and financial advisers to help you navigate the more complex areas of the deal, sale and handover.

Areas to consider will include reviewing wills, trusts, shareholder agreements, capital gains tax and inheritance tax. Proper planning at this stage helps both parties – you as the outgoing owner and the incoming generation – avoiding any potential disputes.

5. Plan for business readiness and continuity:

The business you hand on must be attractive to a buyer, or a viable business proposition for your incoming successor and their management team.

To keep the business trading smoothly, make sure you’ve documented all your key processes, listed your customers, and have maintained the company’s financial health. Clear up any legal issues or outstanding debts and be ready to hand over a business that has a profitable and competitive future in your chosen industry sector.

Talk to us about your exit strategy and succession plan

Getting ready to exit the business takes a lot of planning. Ideally, a five-year exit strategy is advisable, giving you time to plan, prepare, add value and choose a worthy successor.

Come and talk to the team about your exit strategy and succession plan.

The following content was originally published by BOMA. We have updated some of this article for our readers.

Keeping on top of your cashflow is even more important during tough economic times.

With global uncertainty, recent high inflation, energy prices soaring, supply chain challenges, cash is likely to be tight over the coming year. Cloud technology and fintech apps, can give your business the best possible control over its cash.

Why is cashflow so important?

To keep your business operating, you need enough money coming into the business to cover your outgoings – with enough surplus cash to deliver a profit.

In recessionary periods consumers have less disposable income to spend on your products and services. Business customers will be looking to reign in their spending on suppliers. As a net result, your business is likely to make fewer sales and will bring in smaller revenues.

This means:

• • Reduced income coming into the business.
  • Less cash in the business to cover your operational expenses.
  • Not enough money in the bank to pay suppliers, utility providers or payroll costs.
  • In the worst-case scenario, insufficient cashflow for you to continue trading.

What can you do to improve your cashflow situation?

The more informed you are about your cash position, the more you can do to prepare for any cashflow gaps. It’s this foresight that can make all the difference when you’re battling against tough external economic forces and a downturn in sales.

If you want to safeguard your cashflow, these are some sensible steps to take:

• • Switch to cloud accounting – accounting and finance technology has moved on in leaps and bounds in the past decade. The best cloud accounting platforms all offer a detailed reporting of your cash position. These software tools will generally offer real-time data, giving you up to date cash numbers.
  • Integrate with cashflow forecasting apps – cloud accounting platforms let you add third party apps to create a custom app stack of helpful business tools. There are plenty of cashflow forecasting apps to choose from, giving you the ability to predict your future cashflow position.
  • Plan ahead for the cashflow gaps – when your forecast shows a shortfall of cash coming up, that’s the time to take evasive action. If you can see that there’s a cash hole approaching next month, it’s time to look at ways of raising extra finance to fill that hole. That could mean extending your bank overdraft, taking out a small business loan or taking out an invoice finance facility with a lender.
  • Look for opportunities to cut your overheads – one way to even up your cashflow is to cut down on your expenditure. If you can cut back on overheads, expenses and unnecessary costs, this can help you re-balance your cash position, even when cashflow is getting tight. Look for cheaper suppliers, buy in smaller quantities and take every opportunity to cut costs and keep your spending more sensible.
  • Update your prices and your sales strategy – raising your prices is one way to bring in more cash, with the same volume of sales. But it’s a balancing act. Putting your prices up can alienate existing customers and could see you losing customers, but if you can find the sweet spot for your pricing AND also drum up more sales, you can quickly increase revenue and give your cash inflows a healthy boost.
  • Review your cashflow reports regularly – it’s important to look at your cashflow numbers and reporting regularly, not just at period-end. This is particularly important when economic times are tough. With the most current cash information to hand, you can make informed business decisions and aim to keep the business operational.

Talk to us about updating your cashflow processes

With your business in a healthy cashflow position, you give yourself some solid financial foundations for riding out the global recession. No business is invulnerable in these conditions, but with liquid cash in the business, you have more flexibility and more capital to play with.

Book a meeting and let’s see how we can improve your cashflow processes.

The following content was originally published by BOMA. We have updated some of this article for our readers.