Its your Money
It’s your business, which means its your money so you should understand how the finances or the flow of money works, how that is reported and what you will pay tax on, at least that would be a good idea.
Most business owners don’t pay as much attention as they should to this, they usually leave this to the accountant, who gives them a set of accounts once a year that they don’t look at and they do this until they employ a Financial Director and then they leave it up to them and still pay little attention to the money.
The thing is, how do you know your accountant is any good if you don’t have any idea what they are doing or how they should be doing it and ditto for your Financial Director?
Nearly every single client I work with who has been in business for more than 3 years has had an issue with either their current or previous accountant, and I know there are good ones out there, but just like every other industry and profession there are a lot of mediocre ones to the downright awful out there who do not give you good service or good advice and trust me when I say qualifications or the amount of time they have been in business play no part in the quality they give you.
That means it is critical that you understand the basic finances in your business, your Income statement also known as your Profit and Loss, what it includes what it doesn’t and how it relates to your Balance Sheet, which means you need to understand what a Balance Sheet is, what it shows you and why it is important, you also need to understand what a Cashflow Statement is, how it relates to both a Profit and Loss Statement and the Balance Sheet.
You do not need to become an accountant, you do not need to be able to input all the data or run the payroll, but you really do need a basic understanding of these things and what the taxation implications are of your decisions, because no matter what your accountant says it is the business that pays the price of getting it wrong and that ultimately means it is you who will suffer not your accountant.
How in the world can you make good and timely financial decisions if you have to ask your accountant for your profit so far this month or this year, if you don’t know what your approximate current tax liability is, and you don’t already have the adjusted VAT amount put aside for the next payment then how are you finically responsible within your own business?
You want to have a more profitable and sustainable business then learn about your finances and measure the numbers every month, day, and week if not every day and every hour.
Its your business, so its your money and ultimately your responsibility.
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