When you first start out in business no matter whether it is going to be a small or medium sized entity, you are carefully monitoring the money situation. There are always start up costs, and then there are ongoing costs throughout the life of the business. Your most interest will always lie with the bottom line. If you really want to be business savvy then there is more to look at besides the profit or loss margins.
The growth of the business:
You need to keep an eye on your profits at year end and compare them with previous years. Your past financial history is critically important to you. If your business is growing in profit each year then this is great, but you can’t just assume that this is going to happen every year. You have to make sure that you are on top of the variables that contributed to the profit growth.
How do the profits compare to other companies?
While you may be most pleased that your company has turned a profit for the current year, you need to be aware of what is happening in your industry. Are their indicators that it is slipping? Are similar businesses to yours closing down? Are you competitors expanding, which may indicate they are turning a greater profit than you? You need to create an awareness concerning your profits.
Meeting the obligations:
You have to determine if your company is in a solid financial position where it can meet its short term obligations. This means you have to have a set amount of money coming in or money in reserve to meet these needs. You need to do some financial forecasting for the upcoming year, to ensure that your profits are going to cover those needs.
Financing for growth:
You will probably find that at some point in time that you need to expand or grow the company. You need to know that the finances are in place to allow for this.
Watching your assets:
Your assets can include your equipment and you need to know that you are keeping up to date with your assets. The equipment that your first started out with will be an asset for a period of time, but depreciation will reduce this.
You always need to be sure that you have an adequate cash flow. When your small business accountant prepares and shows you the company financials remember that while the bottom line is important, you need to consider these other financial areas we just covered. Take the time to talk to your accountant who is the financial expert. This individual can review the different areas with you. Your financial figures provide him with a lot of important information that he can decipher. This can help you project the possible future of your business.
