Abdicate the Numbers to Your Accountant at Your Peril


Abdicate the Numbers to Your Accountant at Your Peril

As the business owner, it’s your responsibility to ensure the success of your business, and that includes amongst a myriad of other duties, keeping a careful watch on the numbers.

Accountants and bookkeepers look after the data entry, reconciling and tax issues for your business. These are essential services that need to be valued in their own right.

The issue I see time and time again with business owners I work with is the expectation that the numbers provided by the accountant for tax purposes are the only numbers they need to worry about. I disagree completely.

Buried within the tax numbers, are a plethora of useful numbers to assist you in managing and growing your business. By re-casting the financial reports and adding some depth to specific figures, you will have meaningful information that you can use to make decisions in your business.

Too often I hear the line, “My accountant (or bookkeeper) looks after the numbers”, and I cringe. Because whilst they will, hopefully, be doing a good job of the basics needed to report to the Australian Taxation Office (ATO), they aren’t helping you to run your business.

At the barest minimum, you need to know:

  1. Daily/weekly/monthly turnover.
  2. Gross profit and gross margin and mark up (and no they aren’t the same).
  3. Daily/weekly/monthly expenses.
  4. How much profit you’re making.
  5. What invoices have you issued to clients or customers that are overdue?
  6. What bills do you have to pay?
  7. What other liabilities do you have to pay?

It’s in the regular review of these numbers that you’ll start to find costs that you can eliminate or reduce; product lines or services that give the best profit so you can concentrate on selling more of those items, whether your labour costs have spiralled out of control, and the list goes on.

The worst case of abdication I’ve seen was a man who had been in business for 25 years and admitted to me that he had no idea about the numbers. His mother did all the bookkeeping and met with the accountant, and all he did was sign where he was told to. For 25 years he had no idea how well the business was going, whether he was making money or not, whether his mother was doing the right thing by him and so on.

Abdication of responsibility for your business numbers to anyone else is doing you and your business a major disservice.

Whilst it is essential that your annual financial statements prepared by your accountant for tax purposes are prepared to ensure you pay the least amount of tax within the law, management figures are designed to provide you with the numbers to make decisions through the year to improve your business.

For example, large annual bills like insurance or accounting fees will be treated as an expense in the month they are paid for tax purposes. So, if you pay your insurance in June, you will get the tax deduction for it in the year ending 30 June, but for management purposes, the insurance relates to the period from June to the following May which means the majority of the expense relates to the next financial year.

When preparing management reports, these annual figures will be adjusted to take up one-twelfth in each of the ensuing 12 months thus spreading out the expense over the time period it relates to.

Specific tax rules, like the $ 20,000 asset write off for businesses turning over less than $10 million (which expires on 30 June 2018), means that the tax accounts will show an expense of the full purchase price of these types of assets, whilst for management purposes, it would make sense to treat the purchase as a capital acquisition and write off the amount over time.

These are just two examples of how management reports and tax reports can be significantly different whilst using the exact same numbers.

You don’t need to learn how to be an accountant, let your accountant and bookkeeper continue to do their jobs, but if you’re not getting separate management reports on a monthly basis, look into how this can be done for you.

Your role is to review the management reports, learn to understand and interpret the numbers and ask questions about them. Only then will you have control over the numbers yourself, have the information to make informed decisions and you will gain peace of mind as you’ll know what is happening in your business.

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