Regular review of your financial statements is critical for business management and planning. However, for many Sydney business owners, reading and understanding their financial statements is like trying to read a foreign language — they need an interpreter. That interpreter should be their accountant.
Sydney business owners who are serious about making strategic decisions to keep their businesses profitable recognize that the key to making the right decisions lies in their financial reports. They rely heavily on their accountant to assist them in tax minimisation, maximising cash flow and maintaining a proper asset to debt ratio. At the same time, business owners can and should
learn the basic fundamentals needed to understand and interpret those financial statements. Below are some of the essentials that every business owner should understand.
What Your Balance Sheet Tells You
Your balance sheet provides a snapshot of your business at a specific moment in time. It tells you how much cash you have in the bank, how much money is owed to you and how much money you owe to others. It also shows the amount of capital, or the owner’s investment in the business. Your assets less your liabilities equal the amount of equity you have in your business. Your bank is very interested in these numbers; you should be, too.
Keep a Close Eye on Your Income Statement
Your income statement will not only tell you the amount of revenue you generated during a specific period – it will also tell you the cost associated with generating that revenue for the same period. The difference between the revenue and your costs will show you the amount of profit or loss your business made for the accounting period. Comparing income statements from one accounting period to the next will help you determine whether your profitability has increased or decreased. This financial statement is a key tool in projecting net annual profit. Your accountant will make use of these numbers to assist you in tax minimisation strategies.
Budget vs. Actual
Determining annual, quarterly and monthly budgets should be done each year with your accountant. Sydney business owners who take time to set and compare budgets to actual figures can use this information to make adjustments mid-year rather than waiting until the year-end totals are calculated.
What a Trusted Accountant in Sydney Will Look For
When we meet with our clients in Sydney, we assist them in digging deeper into the messages provided by their financial statements. We look first to determine whether the numbers are accurate; then we use certain calculations and ratios to interpret what the financials are telling us. We specialize in consulting with our clients to achieve their tax minimisation goals.
These are the thoughts and opinions express by Kris Prasad.