Understanding simple numbers the key to success in small business says online accounting software provider
Released on: August 3, 2008, 11:26 pm
Press Release Author: Lucy Whittington
Industry: Advertising
Press Release Summary: Ambition, drive, and a great idea only get you so far in business. To make truly smart decisions, you need to be on top of the numbers and what they mean, according to Xero (http://www.xero.com) online accounting software co-Founder and UK MD Hamish Edwards.
Press Release Body: England, UK. August 4, 2008 -- Edwards, who is also a chartered accountant, says up to date financial data is critical to manage a business well, particularly in crucial start up or expansion phases.
"Most people would say a big increase in sales is a good thing in business, but ironically it can be a disaster because of the effect on cash flow," he says. "If you're not on top of your basic numbers, you risk being saddled with a huge debt to your suppliers that you can't pay because you haven't received the money from your customers yet. If you're on top of it you can plan for it."
"Entrepreneurs who know their numbers have a tremendous advantage. Your chances of being hugely successful are increased immensely if you have an up to date daily understanding for your numbers, especially your cash flow. All the successful entrepreneurs that I know say knowing the numbers is critical to success.
Edwards says the key numbers to watch are:
Bank balance. If you do nothing else, know this. Cash at bank needs to reconciled and brought up to date every day. Cash is the life blood of any business - you need to know it daily.
Money coming in. Sales you have made on credit but not yet collected. Know your terms of trade and when people are supposed to pay you. The day they are late, get onto them, they might just need a gentle reminder.
Money going out. The only real way to control your cash flow. As your cash comes in, you can let cash out, simple, but sometimes very hard. Know who your must pays are and if possible negotiate better terms of trade with your key suppliers.
Sales. Know your sales, daily, monthly, quarterly, annually. Track them against your forecast so you know if you're making your targets.
Expenses. Keep a close eye on these and be prepared to reduce them any time you can, especially if the business outlook is grim.
Profit. Sales less expanses. Look at it as a percentage of sales and you'll know how profitable your business is. Make sure you compare your profit margin with industry averages to see if you should be doing better.
Taxation. Avoid unpleasant surprises by knowing how much tax you have to pay and when. Always forecast your tax, it is easy to do.
Net cash flow. So after you have collected your cash, paid your expenses and your tax, how much is left over? If it's not much, then you need to think about an overdraft or factoring. If it is at a good level, you can then consider reinvesting for growth, or a new car, the choice will be yours.
Xero provides small businesses and their advisers with one, up to date, easy to use, instantly accessible set of accounts and business information.
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