Which Section of Your Financial Records is Most Important?
People view important factors in many different ways. There is an old saying that when a person looks at a glass of milk that is half full, some will say it is half full while others will say it is half empty. This same concept is often applied to the information that is provided by a business’s financial statement.
Some people will immediately focus on the income section of their financials. They feel that this is the most important information for them to base future decisions on. If there is not enough profit showing compared to their expectations, they now almost adopt a tunnel vision approach on what needs to be done to increase that number.
Now others will immediately turn to their expenses. This is an area that they are often concerned about, and is readily noticeable throughout the business year as there is an ongoing to need to pay out costs related to the business. These individuals will focus all of their attention on way to decrease their expenses.
So which is the best approach? Who is right here and is making a better business move? The answer is for the best approach both are equally important, and for the best business move both actions are necessary.
Think of it this way. If you don’t reduce your expenses then you have to work all the harder to increase the profit margin. This has its own repercussions. It may mean that you need to expend more time on drumming up business, and you need to hire more staff. A portion of the money you are generating with these efforts could be going to unnecessary expenses.
Now if you are the type that is focusing mostly on your expenses, you could be limiting your business growth. Yes you will create some security in regards to protecting the money you are generating at the moment, but you really are not putting any efforts into stimulating growth.
The perfect scenario is lowering your expenses while at the same time increasing your profits through business growth.
When it comes to your business you have the present concerns which are to ensure that it is generating money for the here and now. You also have to consider its security for the future which in turn secures your future. This is where the third segment of your financials comes to the forefront which is your liability and equity. Your goal is going to be to decrease your equity and increase your assets.
This gives you a good overview of how you should view your financials. The next task is making sure your tax accountant receives these in order to complete your taxes, as well as give you some additional insight as to how your business is doing.