A trusted adviser can help you track data and review ways to boost profit. Mark Van Benschoten, a principal at Rea & Associates Inc., lists some things to consider in discussions with your accountant.
Q. What accounting missteps might lead to decreased profitability?
A. Not having timely and accurate monthly financial statements can hurt a business. Within a few days of month’s end, you should have a current income statement, cash flow statement and balance sheet. A trusted adviser, like a CPA, banker or CFO, can help you understand how each of these reports reflects how your business is performing.
Q. What accounting tools could prove most valuable to business owners?
A. It does not matter how large or small your business is, a budget will help you keep your eye on the things that are most important. Compare your actual results each month to your budget, giving you an indication of how your business is performing in key areas like sales, margins, overhead and cash flow.
Q. What do businesses commonly overlook that can pose problems?
A. Many businesses don’t have a good handle on the true cost of a product. This leads to underpricing and potentially critical losses. In addition, many business owners will cave into lower price points for larger clients without evaluating the impact of shrinking margins. You also need to review your current pricing. You cannot set prices for an extended period of time without considering price increases in raw materials.
Q. How does risk affect company value?
A. There is an inverse relationship between your business value and the amount of risk associated with your business. Why does risk lower value? It is because risk causes uncertainty about the future cash flows. Once you understand how specific risk factors impact your value, you will be motivated to set a plan of action to reduce your business risks.
Mark Van Benschoten, CPA, is a principal at Rea & Associates Inc. Reach him at (614) 889-8725 or firstname.lastname@example.org.