Why do I need to understand my Accounts?

Why do I need to understand my Accounts?

Why do I need to understand my accounts, I’m a creative I’m not an accountant? You may well think that, but for certain if you run your own business regardless of what stage you are at – Freelancer, Solopreneur or Small Agency. You are an entrepreneur and a business owner and you need to know this if you want to be successful.

You need more than talent to be successful. You need to know your business and to know your business you need to know the accountancy stuff as well.

Do you understand your accounts?

Do you actually understand your accounts or do you just approve them and trust your accountant to do them properly? Why do you do that? These are the most important documents that you will have in your company in the next twelve months. They will decide how much tax you pay and they have many secrets to tell you about your business. Secrets that can make your business and your life better.

What do you think need to know to be able to understand the accounts?

The fact is that a lot of the accounts if you own a limited company is the ‘reporting part’. There are statements on there that the company needs to make by law. You need to be able to understand what your duties are under the law, but they won’t really tell you much about your company until you start to look at the numbers.

By numbers we mean looking at the profit and loss account and balance sheet. These tell you what you have earned during the year and the balance sheet gives you a snapshot of your business at the year end.

How can I educate myself?

The easiest way is to ask questions. If there is anything you don’t understand you need to ask what it means. You need to know where the numbers come from and what they mean. What does the ‘Creditors’ amount mean and where do the numbers come from?

We want you to be able to get as much out of our relationship as possible. We want to educate you to be able to understand the accounts and answer any questions you have about them.  We want to have better conversations with you about your accounts, part of this is you being able to ask questions to us.

A lot of the answers to these questions may just be in a list of transactions with numbers at the side! What you need to know is what do these mean for me and my business. That is how much am I paying in wages, office rent and all the other expenses.

You need to know where all the money is going and if you are paying too much for these. You need to know that you are getting value for money and what you are spending is actually helping you and your business.

If you are a client of ours we will give you help and advice on how to understand the accounts and help you become better at your business.

Why do I need to understand them?

The accounts can give you a lot of information about your business. They can of most importance to you tell you how much tax you have to pay. But they can also tell you where you are spending your money.

If you have sat down and realised where your money goes, perhaps it is time to do that now. Are you getting value for everything that you spend? Are you wasting your money? You need to look at everything you spend and decide if it is absolutely necessary. Do you need it or is it a luxury?  You need to keep your business ‘lean’ and cut out any un-needed expense.  

You need to make sure that you are in control of your business and that will mean you are in control of what you spend and that you can look at your accounts and understand them.  You need more that a list of these expenses you need to understand why you are spending this money.

How can they help you improve your business?

You can use the accounts to analyse your business. What do we mean by analyse? We mean that we can see trends in your accounts, we mean that we can see how the numbers move in relation to each other. We can see how much your wages is a percentage of your total income. When we see that we can compare you with businesses like yours and we can see if your wages are too much or less than what other companies are spending?

We can also do this for other expenses and we can start to build a picture of how your business compares to other businesses like yours and how your expenses are different to theirs.

Why is this important? If you are bidding for projects and being constantly undercut in price. You need to understand why, if the costs that you have mean that you have to charge more you need to understand what they are.

This can also give an insight in to how another business may be set up and if there are lessons to be learnt and applied to your business.

You need to be able to understand how much you have to keep in your bank account to make sure that you can pay the bills. If you can take out more and invest in your business that will help you grow and make more money. When we analyse your accounts in depth we can help you find out these answers and help you make better decisions for your business.

What can you learn form the accounts?

You can learn what the ‘key performance indicators’ (KPI’s) are for your business.  These are the important numbers in your accounts that help make you successful or not.

These can be how long it takes you to get paid for the work that you do. How much it costs you to complete a project for the client. Does it need to be constantly reworked or is it easy to complete? How much cash you need to keep in the bank to pay the bills every month.

You may not be aware of how long it takes you to collect the money in for the work that you do. If we focus on a KPI for debt collection and we try to improve that for your business. It will obviously mean that your cashflow has a boost because the money is in the bank account quicker. But it may also mean that you are reducing the borrowing that you are doing and saving interest expenses and that you are able to invest more in your business because money is not tied up owed to your business.

Once we start to look at your accounts in depth we can start to address issues like this and help you set up processes to improve your KPI’s.

Do potential clients look at your accounts?

Do your potential new clients look at your accounts? If they do any kind of ‘due diligence’ on you before working with your company you need to make sure that the information that they are seeing is correct and gives an accurate picture of your business. If it is not correct you might be losing the chance to bid for projects that you would like to work on.

Your accounts are one of the most important documents that your business will produce. You need to make sure it is done correctly. You need to make sure that you can understand it.

It will also be a great source of information about your business. If you can learn to analyse it properly it will give up its secrets. Secrets how to make your business better, to help you grow earn more money and have freedom.

You will struggle to grow your business if you do not start to learn these things. You will need to start to learn to engage the right and the left side of your brain. You need the creative skills but you will also need to understand the business.

If you ignore one the other will suffer.

Book a call to find out more!

If you need help understanding your accounts and making your business better, please arrange a call to discuss.