Do you prefer fiction or non-fiction?
Let me ask you in a different context;
Would you prefer to know the truth, or pretend to know the truth?
But what does this have to do with business you ask?
Everything.
If you have been keeping up to date with your accounting (which you have been or will
right?) then you will have a lot of very useful information. I will say it again – very useful
information.
You see, done properly – which means accurately and in a timely manner – your
accounting records will provide you with information that will help you better manage
your business.
Numbers tell a story! Accounting is not a make work project or a government incentive
(far from it). Rather it is a method to keep score on how your business is doing in terms
of achieving your business dreams?
The reality is that most businesses view accounting as a chore, a useless task to help
file a tax return – seriously!
The truth is, the information at your finger tips can and will help you make useful, better
informed business decisions. And remember the word “timely”? What is the point is
using old information to make business decisions?
The sooner you can adjust and make any necessary business changes; and then
measure, adjust again and then again… then the better your chances of success.
Here is a simple example using a current ratio (current assets over current liabilities).
This ratio measures the ability of a company to cover its short-term obligations. We
would like to see at least a 1 to 1 ratio.
In our example our accounting records show that in March our current ratio was 1.7 to
1.0; followed in June at 1.45 to 1.0; and then September at 1.35 to 1.0. As you can see,
we have a falling current ratio ie. a potential problem! Why?
If you have timely and accurate accounting, you will be able to use this simple ratio to
start asking the necessary questions, and then make any necessary operational
adjustments as required. If you do not have timely records… well then you will find out
later somehow.
The take-away…
Your accounting information is useful. The trick is to understand what the
numbers are telling you and then using this information to your advantage.
Jim.
