Accounting 101 - Answer These 5 Questions To Ensure The Health Of Your Business Accounting

Hello and happy holidays! Today, we’ll go over some accounting basics that are practical and easy to follow. Here are 5 questions you need to answer to take control of your accounting and ensure your business is successful.

1. What’s causing changes in revenue?

You need to be vigilant about monitoring sales on a weekly basis. You’ll want to compare sales figures week over week, month over month, and year over year to note trends. Ask for a sales report, which usually contains a graph charting your sales numbers on a line. Any spike up or down is an indication of a change in revenue, and you’ll want to determine what’s causing those changes. If sales go up, you can learn why and duplicate the success later. The reason might be that you had a new marketing campaign, opened more sales channels or hired more salespeople. And if sales go down, you’ll discover what strategies to avoid. Keep notes on what works best for your company.

2. Are expenses outweighed by revenue?

It doesn’t matter how great your revenue is – it doesn’t mean diddly-squat if you’re spending more money than you’re making. Along with a sales report, ask for an expense report. Expenses should support your revenue, so if you’re spending money on strategies to drive sales, you need to make sure that the result of spending is positive – sales have gone up. When sales are down, you want to correspondingly reduce your expenses. Make sure that revenue exceeds expenses.

3. How much did inventory change?

I get questions about inventory a lot. Entrepreneurs are often not confident about their inventory numbers. Your inventory changes week over week based on how much your business bought and sold. Although the detailed calculation can be confusing, you can always go back to the most basic way to verify your overall inventory level: keep track of how much you bought and sold. From there, dive deeper into the numbers with your Financial Analyst.

4. Have payroll liabilities been paid off?

The entire payroll process requires detailed recording for tax and regulatory purposes. When you talk to your Financial Analyst, you want to ask them if all the payroll liabilities have been paid off and if they have been recorded properly on the accounting system. You also want to ask if all the checks (if you issue them) have been reconciled. Check fraud is still a real concern!

5. How can I keep cash flow strong?

Cash flow and forecast and budget are the top priorities for Financial Planning and Analysis. You know the old saying: “Cash is king.” Do you spend your resources as soon as you receive cash in the bank or reserve it for an advertising campaign or inventory purchase? Set aside some time to sit down with your Financial Analyst and work out your financial plan. A budget is the tool for you to control and monitor the activities in your company.

Interested in learning more? Tell us your burning questions related to accounting and finance and we’ll answer them in our next blog post. Until then, keep working toward your dream!