Understand Your Numbers

During the last few years of using Xero (a web-based accounting software), I have learned enough about accounting that I am able to do my own book-keeping. Of course, everyone have their own preferences for their own accounting software so I am not about to start evangelizing why Xero is better than your accounting software, but the main point is you should be able to read the key reports that is generated by your accounting software.

Some may argue that the most important metric in their business is their cash flow and they stopped at that. That’s like saying the most important organ in the human body is the heart. Of course cash flow is important but it doesn’t tell if you are profitable or not. One simple example is companies that get capital injections through external fundings and loans. Cash flow will be positive for a period of time until it’s not, and instead of going back to the drawing board to look at the viability of the company’s product, founders who only rely on cash flow to run their business continues to look for even more funding. A company that doesn’t generate profit for too long is not a very motivating place to work in.

An in-depth understanding of your business’s Management Report which comprises of your Profit & Loss, Balance Sheet, Receivables and Payables statements will give you a very clear understanding or your company’s financial position and assist you in making better decisions. You can definitely still be successful in growing your business without accounting skills but without actual data to back you up, you are at the risk of not being able to monitor your expenditures or expanding in categories where the growth is plateauing.

It’s hard to argue with facts and figures. So, don’t start.

2018-07-31T16:21:45+00:00July 29th, 2018|Entrepreneurship|0 Comments

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