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The Importance Of Profit In Business

There is a risk involved in running a business. Making a profit is a reward for the risk that business owners have bravely taken. While making a profit is not just the only goal of every business, it is one reason a business operates.

The importance of profit:

1.    Efficiency indicator: One of the ways to measure the success of the business is to check the profit it has earned for a given period of time. Profit is considered as a yardstick that determines the business firm’s efficiency and earning capacity.

2.    Survival: It will be impossible for a business to survive without earning sufficient profit. Business owners consider profit as a source of income and it is also used for paying business expenses, salaries of employees and even buying raw material. Your business does not have a chance to survive if it is no longer earning a profit.

3.    Motivation: When you see your profit increase, you will be more motivated to strive harder and take risks. There is a direct relation between profit and risk. When the risk is higher, the profit is also higher.

Ways to improve your profit

Reduce your cost:Minimising direct costs can have a positive effect on your profit. This can be done by negotiating with your suppliers to lower the process or reviewing the processes and systems. Instead of sticking to the same supplier year after year, it is important to explore other options that can help your business minimise expenses. When you improve your procedures and methods by ensuring that they are systematic. Good systems help you prevent errors and save time and money.

Focus on profitability:Although increasing your profit may not only be your priority, it is worth focusing on profitability as it has a dramatic impact on other aspects of your business. Employees must also be aware of the importance and role of profitability in your business. Ask your bookkeeper and accountant how you can ensure you are monitoring the right indicators that will give your business a boost. When it comes to your team, make sure productive employees are rewarded because great pay is linked to effectiveness.

Make continuous improvements:Anticipating problems and adopting technologies that can enhance your company’s ability to make continuous improvements will do wonders on your profitability. Good planning is important in achieving your goals and making improvements. When measuring the effectiveness of your plans, set measurable targets and review your performance as a team. You are on the right track if you see improvements on your system.

Improve your turnover:Some of the known techniques that can increase your turnover include focusing your efforts on profitable customers, keeping your services or products up-to-date and maximising the value of your sales.  It has also been proven that businesses actively selling their products instead of just taking orders have increased their turnover and more likely to survive.

How To Keep An Eye On Your Cash Flow?

Business owners often neglect cash flow without realising its importance. There are businesses that fail to survive because of poor cash flow management. Although it does not take a large chunk of your business’ financial aspect, it will still have a negative effect once you do not pay serious attention to it. Bookkeepers and business owners need to work hand in hand to maintain a balanced cash flow.

There are two kinds of cash flow: negative cash flow and positive cash flow. Negative cash flow occurs when incoming cash is less than the outflow of cash. This only means something is wrong with the way you handle your cash flow. Positive cash flow occurs when the cash flowing into your business is greater than the amount of cash leaving your business such as salaries, monthly expenses and accounts payable.

It is also interesting to note that profit does not necessarily equate to cash flow. There are other financial figures that must be factored in before cash flow can be obtained such as inventory, accounts payable, capital expenditures and debt service. When it comes to cash flow management, a business owner needs to be focused on the drivers of cash. It is not enough that you concentrate on profit or loss because you also have to know what happens to your cash.

However, a business will not generate profits without a positive cash flow. You need to have enough cash so you can pay your suppliers and employees. A positive cash flow will only occur if you structure your business. Structuring your business will involve planning in advance and making sure that you avoid unnecessary spending.

Ways To Improve Your Cash Flow

Collect receivables:  receiving and processing your receivables can still be improved when you ask customers to preauthorise checks. This way banks will have the ability to draw against their accounts following timed intervals. It will also be a good move if you ask your customers to pay using depository transfer checks as this is a cheaper type of fund transfer. Another way to encourage timely payments is giving discounts to those who were able to pay their bills quickly.

Tighten credit requirements: although it is common for most businesses to extend credit to their customers, it is also necessary to determine the risk of extending credit. You may need to take a few things into consideration such as their ability to repay the money they owed. Check some references and accept credit cards. Although it may cost you a percentage, it is still a safer bet for getting timely payments.

Increase sales: attracting more customers is an effective way of getting more cash. However, there might be some challenges in selling your goods but you can make more sales by selling cheaper goods to existing customers.

The Information You Should See In A Financial Statement

Although bookkeepers are the ones responsible for preparing a financial statement, it does not necessarily mean that business owners no longer have the right to know the information that must be included in it. There are instances when bookkeepers fail to provide the information that the business owner needs in order to determine if it is time to grow or expand your business. There are essential details that must be found in the financial statement for you to make sure that you are well aware of the financial standing of your business.

Income Statement

The Income Statement Report provides you an overview of the overall performance of your business. It provides you the details of profit and loss in a particular period. The income statement also provides you the profit/loss before tax, profit/loss after tax, income tax, expenses and revenue.

The Profit Before Tax is the amount of sales higher than the amount of cost that has been produced. Loss Before Tax is the amount of sales, which is lower than the cost to produce. When the report shows loss, it only means that the operation of your business is not doing well.

The Profit After Tax is obtained when you identify the income tax you are going to pay. The actual amount of profit or loss is computed if the applicable amount of tax is deducted.

The Income Tax refers to the amount of obligation that your business needs to pay to the government. This is determined by checking the country where your business is currently in operation. The Income Tax is determined from the tax rate obtained from a particular country multiplied against the Profit Before Tax.

The Expenses are the amount of cost to produce an item that will be sold. This can be referred to as the material used, bad debts expenses, depreciation, interest expense etc. The Expenses also help you determine if your business is spending on product improvement or investment. This is also the section that will tell you if you have given high salary or benefits to your employees.

The Revenue gives you the details of the amount of sales in a given period. There sales may come from the service fees or the sales price of goods. It will also depend on the kind of business an owner runs.

Balance Sheet

The Balance Sheet is where you can find the asset, liability and equity. The asset adds business worth and it provides significant information on the fixed assets, receivables, short-term and long-term investments and more. The assets are important because they tell you whether it is high time for your business to grow. It is also a reliable section that will tell you the business operation’s sustainability.  The liability is your business’ outstanding loan obligations.  The liability will show you the balances for bills payables, accounts payables and notes payables. The equity tells you if your business is ready for expansion. If you have high equity balance, it is a good indicator that you have kept your business on its feet.

5 Mistakes Small Business Owners Make And How A Bookkeeper Can Correct Them

Small business owners should not put the blame on bookkeepers for costly financial mistakes because an entrepreneur can also commit these errors. Although these may be minor errors, they can still stunt business growth. The good news is, you can still learn from your mistakes and a reliable bookkeeper can help you straighten things out and put an end to your bookkeeping woes.

Lying about personal income

When it comes to paying your taxes, the higher your income the more taxes you are going to owe. Although this is a simple equation, overstating income can have a serious effect on your business. For instance, failing to declare your personal income will give you problems when it is tax time. Your business owner should remind you to be honest about your personal income. This way, you will not have any problems when paying your taxes.

Not hiring a bookkeeper

All business owners need a bookkeeping professional to put things in proper perspective. Someone who is proficient in bookkeeping can manage your financial report and make sure that you are audit-ready. Unfortunately, there are business owners who choose to cut corners, living under the impression that a bookkeeper is part of unnecessary expenses they need to stay away from. A bookkeeper knows how to deal with your finances. They can efficiently use their time so you can get better results. As tax time approaches, you will no longer have to worry about your reports as they are well taken care of by a reliable bookkeeper. If you are still hesitant to hire a bookkeeper due to the cost of the service, make sure you keep the long-term benefits in mind and you will realise that a bookkeeper is more of an asset than a liability.

Putting off important tasks

Entrepreneurs are busy and they can find themselves juggling multiple tasks at the same time. However, this should not be an excuse for procrastinating as an avalanche of tasks may come your way and you may end up getting overwhelmed. Schedule time for bookkeeping task and avoid doing it yourself. There should be a bookkeeping professional to help you get things done and carry out these tasks at the time most convenient to you and your bookkeeper.

Data entry errors

When you do not have a solid grasp of bookkeeping concepts, you will find it difficult to come up with an accurate and error-free report. There are cloud-based accounting programs that can solve problems with data entry. With this program, it will be much easier for you to identify any mistakes on the report and critical errors are easily corrected.

Reasons Why A Business Owner Should Invest In A Good Bookkeeper

Managing your business is not an easy task because you need to pay serious attention to all business aspects. One of the things that a business owner should take into consideration is the financial activities because it is the key factor that determines if the business has a chance of expanding in the future. A bookkeeper should have the ability to get things done and make sure that tax payments are made in a timely manner. Creditors are usually looking at the reputation of a business owner and when payments are always delayed, they will also doubt if you can make timely payments.

The benefits of choosing an efficient bookkeeper:

•    Greater peace of mind
When you know that you are entrusting your financial report in a bookkeeper that can get the job done, you will no longer have to worry about irregularities. A business owner may only have basic knowledge on bookkeeping, but when the task is assigned to a trusted bookkeeping professional, you are assured that one of the most important aspects of your business is in good hands.

•    Bookkeeping tasks are handled properly
Reports need to be accurately created because the details are going to be used for making a recommendation. If a bookkeeper cannot provide detailed information of your financial status as a business owner, you will never know where your business is heading. You may think that everything is going in the right direction, but once you start checking your financial report, everything is not right. When you are working with a competent bookkeeper, you will be able to be more aware of the aspects of your business that need improvement. You will also know if you are ready to grow your business.

•    Systematic bookkeeping process
The procedures and systems need to be systematic for record-keeping to be more effective. For instance, keeping important receipts is an important part of the bookkeeping process. Without this process, business owners will have difficulties keeping track of their expenses. When a bookkeeper keeps track of expenses by keeping receipts, it is easy for every business owner to know if they still have enough money to cover daily expenses.

•    Timely payments
A bookkeeping professional knows when important payments must be lodged. The cash intended for payments are set aside to avoid penalties from ATO. If a bookkeeper is not efficient, payments will be missed and penalties will pile up. One thing that a bookkeeper does to ensure that you make timely payments is ensure that you are not using business account for personal expenses. A bookkeeper also checks cash flow to ensure that it is still intact. Minor mistakes such as forgetting to track daily business expenses can have a negative effect on one’s business.

To some business owners, hiring a bookkeeper can be costly, but the benefits a bookkeeping professional provides definitely outweigh the cost in the long run. If a business owner takes a look at the bigger picture, a bookkeeper can be an asset especially when they are doing their job such as tracking your finances regularly.

Why Hire A Bookkeeping Service?

Small business owners often consider hiring a bookkeeper costly, but they realise the importance of a bookkeeping service when the business’ financial aspect is in chaos. A savvy business owner will consider hiring a bookkeeper to focus on other front-end activities. While this may not seem practical at first, a business owner will find a bookkeeper useful when everything is placed in proper financial perspective.

Benefits of hiring a bookkeeping service

•    It saves time.
When it comes to data entry, accuracy is important because the financial statement will serve as a basis for bookkeepers to know the direction the business is heading. If figures are not clear, you will have trouble ensuring that your records are accurate and clean. It is important that you keep records of the book. When a bookkeeping service is available to take care of these tasks, not only will business owners prioritise front-end activities such as maintaining a positive company image, generating sales and strengthening relationships with vendors there is also a greater peace of mind knowing records are in good hands.

•    Professional help is provided.
Relying your bookkeeping tasks on professionals will give you an assurance that important tasks are well taken care of. As a result, you will no longer have to worry about filing tax returns because you are confident that your records have been handled by a qualified bookkeeper. You can also be sure that you obtain a certain level of professionalism and expertise.

•    It saves money.
Every cent counts for a small business owner. Unlike established companies, cash flow is limited for a small business. One of the ways that small business owners do to save money is to cut corners even if the financial aspect of the business is greatly affected. However, when you cut labor costs, you may also be compromising on the quality of your daily task. If you have a full-time bookkeeper, you will no longer have to think about bookkeeping since there is a qualified individual who can efficiently do the job.

•    More focus on the task at hand.
Although many businesses tend to multi-task, there are still some drawbacks in multitasking that small business owners need to take into consideration. Since the business owners cannot give 100% of their attention to the client, financial and administrative matters are often overlooked. When professionals take care of bookkeeping tasks, financial matters are handled efficiently. Small business owners no longer have to worry about missing out on important details of bookkeeping.

•    Things get done professionally.
DIY bookkeeping may not give you the best results you are looking for. Although your intention is to save money for your expansion, you may not be able to achieve this goal if there are irregularities in your financial activity. A bookkeeper will see to it that things are done correctly.