After many years of navigating clients out of tough spots and developing methodologies that actually work, I have come up with what I believe are the three most important pieces of information that are inherent in all business.
No matter the size of your business or what your business produces to sell, we all need to understand and respect the value of information. Believe it or not, your business has the ability to supply data that you should be reviewing and mining to help navigate these tight economic times.
I have said many times before, what is happening to the U.S. economy is normal, a sort of self-cleaning episode that will make things tight. Things will be tough, if you are not prepared, tight if you are prepared.
I see it all the time, business generates great data that we should be mining for valuable information about costs, customers, operations, accounting, and sales.
I have come up with what I believe are the three most important pieces of data already available to you via your inherent accounting software package.
1) Job Costing
You must know and understand the cost of everything you do within your business. Often I hear clients tell me how much work it takes to track and manage costs, but I could not stress the importance of all that time and work you need to take to manage costs. It is simple math, not enough of one thing will lead to not enough of another. In other words, if you don’t know how much your product cost to produce, it will be a matter of time before you run out of money to produce your product. I see it all the time. Business simply runs out of money and only asks, “Where did my money go”? I always find the loss buried in the cost of production.
This is a particularly sensitive topic for me because I often see that business relies on the accountant, the accountant, the accountant. That’s all I ever hear from business, “my accountant does that”, etc, etc. The reality is that most accountants and CPAs for that matter do not get into the operational side of business. Accountants and CPAs are tax professionals and they do exactly that…tax. The misnomer is that an accountant or CPAs knows everything about business. That is simply not true. The truth is that they have access to something we really don’t want to get into or that they have access to something that is perceived difficult and tedious to understand, accounting.
Truth be told, the accounting part of business is the life blood of any and all business. It is the gasoline in a car, it is the wings on an airplane and it is what makes or breaks your business. I tell all my clients to get to know and understand the accounting side of business because it is what will take your business down faster than you can imagine.
Don’t hire an accountant just to hire an accounting person. Don’t hire your friend’s wife to do you accounting just because she needs a job and she’s your friend’s wife. Get to know your business via the accounting side because it really is the lifeblood of business.
The accounting side of business tells us everything we need to know about business, it’s health, it’s longevity and it’s ability to survive. Accountants and CPAs are tax professionals not operational professionals. When was the last time your accountant actually showed up to your business, rolled up their sleeves and really really got into the nuts and bolts of your business?
3) Income Statement:
This is a basic statement within your accounting software package that when exported to Microsoft Excel, can tell you so many many valuable bits of information about your business. Your income statement can tell you the obvious, profit and loss, but it can also tell you about marginal contribution regarding the products or services you sell, your customer sales habits, your operating habits in terms of costs versus sales, overhead that includes SG&A expenses. One of the reasons clients call us is to help manage costs. Exporting your Income Statement to Microsoft Excel can tell you many things about your business that will help you manage these tough times.