Are your accounts giving you information that helps you manage your business?
Most accounts don’t.
When I go into a new client, one of the first things I do is to review the existing accounts.
I am looking to see if they could get more information – additional analysis – from their accounts.
The Sales account is the first account I see. Most accounting systems have only one line for Sales. Yet, it is helpful for most businesses to analyse their Sales in more detail.
You can analyse by the type of work, the nature of the assignment, the type of customer, the geographical region or any other way that gives useful information.
For example a business consultant might have once off consultancy assignments, ongoing retainer assignments, training etc. I mentioned this to a client recently who has launched an initiative to win more retainer business. Analysing his sales in this way, will make it much easier to see if the initiative is achieving the results he wants.
An engineering business might work for industry or for building contractors or for farmers. When I worked for an engineering company some years ago, they realised that they were making a lot less profit on their farming customers. The accounts analysis prompted further investigation and they ended up pulling back from that sector with the result that they achieved better profits with lower sales.
A medical practice might have GMS, private patients, occupational health contracts or public body contracts.
Breaking down your sales can help you manage margins. It can help you understand if your marketing is working. It can show you which parts of your business are performing best for you.
Each business is different and each business owner should sit down and ask what information would be useful to him/her. And remember , this analysis can be applied to more than just sales. Any Cost of Sales or Overhead account has the potential to be analysed further. If you find it useful to analyse your sales one way, you will probably find it useful to analyse all of your costs the same way.
Ask yourself if any costs are giving you cause for concern. What additional information would help understand those costs better? Go into your accounts and set up accounts that will help you with this analysis.
Your accounts will still show the same overall result. You will be just making the numbers work for you instead of you working for the numbers.
Some of the biggest improvements I have helped make in businesses have come from using this type of analysis to understand what is happening in the business.
I have been able to show that a business is losing money to one set of customers and subsidising that loss from a different set of customers. The information was there but the system was just not set up to deliver it.
So have another look at your accounts. Is there some other way of analysing the information that would be helpful to you? Go ahead, then, and make the changes.
If you have any questions about this post, feel free to send me an email to firstname.lastname@example.org.