Most Accountants have a page on their website or marketing brochure telling you the type of services they offer. But how many people actually understand the jargon and what these services involve, let alone whether they need them or not? In this blog series we explain exactly what these services are and how they can benefit you.
What does your Accountant mean by ‘Business Analysis’?
To be a successful small business owner it is important that you understand and can analyse the financial statements of your business so that you have control over your finances and can make decisions based on facts not intuition. Unsure of exactly what this means and how to start? This is where your Accountant comes in. Your Accountant can assist you in extracting meaningful information from your financials so that you can make decisions around staff levels, your prices and the volume you need to sell to break even.
Take for example Greta’s Groceries a local convenience store that measures their performance based on the total sales for the month. The most recent Profit and Loss figures show the following information:
A review of the above figures shows an increase in sales and an increase in gross profit for the most recent month, therefore, based on Greta’s performance measures the business is performing well. However, with further analysis we find this is not the case. In fact Greta’s Gross Profit Margin (GP/Sales x 100) has fallen significantly from 20% in November (4,000/20,000 x 100) to only 16.6% in December (5,000/30,000 x100). This means that for every $1.00 of Sales Greta is now only making 16 cents compared to the previous month where she was making 20 cents.
Analysing your financial statements allow you to gain a much better understanding of your business and helps you to determine the overall financial health. By obtaining advice in the area you can better identify problems, implement corrective actions and improve your operations.