In the past there was no set way in presenting the annual financial statements but due to the manipulation by some in the industry, to mislead investors by manipulating the financial information, changes were desperately needed. The government stepped in and implemented a set of uniform Accounting Standards – principles of which govern business accounting services as we know it today.
These standards oversee how revenue, liabilities, expenses, assets and equity are treated. They frequently change but the core principle remains the same – subtract the costs and wages from sales and you get the profit. While this allows investors to know the true performance of a business, this is not exactly the best way to understand the mechanics of a business.
What do you need to know so you can make smart business decisions?
Your business likely has multiple revenue streams from product sales and services. You should dissect and distinguish each revenue type so you would understand which products and services generate the most revenue.
You should also predict your cash flow and anticipate the sales that will occur in the future, so each product should further be distinguished whether it is a recurring or non-recurring revenue. Recurring revenue are those that typically recur, such as retainer contracts, managed services and subscriptions. Non-recurring revenue, on the other hand, are one-off sales.
To find out if your products are selling profitably, you should allocate your cost of sales correctly. These are all the operational costs you incur to offer your products and services, such as material costs, labour costs, processing fees, etc. Seek a firm that offers business accounting services to do this for you.
While not all dollars are equal, gross profit dollars are. You deduct the total cost of goods sold from your total revenue and you get your gross profit. You should know your gross profit to understand where your business can still improve. If your gross profit margin is high, your business has a competitive advantage for business growth. However, it doesn’t always indicate a valuable business. Gross profit margins vary based on business size and industry. Should your gross profit margin go into the negative, your business model requires urgent attention and needs changing.
Operating expenses are those that are not directly related to the costs of delivering your products and services, such as utilities, rent, wages and insurance. There are two types of operating expenses: general administration and product costs (which are the costs of running the general business) and customer acquisition costs (which are costs you incur from acquiring or converting new customers). If you separate the two you would know how much you spend on acquiring customers and improving overall efficiency.
If you categorise your expenses properly, you would be able to understand your profit margins and make wise business decisions based on correct information.
Business Accounting Service
As you look for different ways to grow and improve your business, seeking professional advice could prove to be an important and helpful decision.
You can click here to speak to experts that offer business accounting services. We would love to help you formulate investment strategies and streamline your processes to take your business to the next level. Our goal is to help you grow your business, find ways to invest more and increase your productivity.
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