Measuring Success
The business owner must have tools to measure progress towards success and ensure that the road ahead does not lead to disaster.
Every business should develop and maintain a Business Plan to focus resources and efforts on meaningful objectives. Financial projections in the Plan become sales forecasts and expense budgets. Progress towards objectives must be measured to provide assurance that the business is on course.
Accounting is the tool for measuring business progress
Inexpensive computer accounting software programs, such as QuickBooks, do not require a comprehensive knowledge of accounting and can be used by most people of average intelligence. These programs will maintain bank balances, track money owed by customers and payments from them; money owed to suppliers and payments to them. They will price and print customer invoices, print checks for payments and quickly prepare financial reports including a comparison to budget.
Accounting software must be selected to suit business requirements. Some software products are good for retail operations, but cannot handle manufacturing or product assembly. Certain businesses must track lot or serial numbers. Think through requirements and seek advice before making a selection.
The books should be closed promptly at the end of each month. Most businesses are able to do this without outside assistance, but information must be entered in the accounting program on a timely basis. Services of an accountant are normally used to setup the accounting system, prepare tax returns and for matters such as depreciation policies. If the business owner or office manager are not comfortable preparing payroll, an accountant or payroll service can handle payroll and associated tax matters.
It is not necessary for a business owner to know how to prepare an accounting report, but ability to use information in the reports as a management tool is a prerequisite for success. The first step in using a report is to look at it. Preparing a report at the end of each month and placing it in a file drawer is not sufficient. The business owner must study reports, compare results to plans and take action as needed. After familiarization with the reports, an hour or two spent analyzing each month’s results can make the difference between success and failure
A list of reports and ratios important to the small business owner may be downloaded by clicking on the hyperlink below
Significant Reports and Ratios
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