Who is the article for?
This article is for business owners who are either sole traders, or have up to ten staff to manager and organise and need to understand how their business is ‘traveling’ financially in order to make positive business decisions.
What is the article about?
This article is about how micro and small businesses owner-managers can understand the P&L and finances of their company without being an accountant to continue generating revenue during this phase
How does it help the reader?
It will provide a simple and easy to understand overview of how to reorganise the chart of accounts in a way that gives them the information they need, without having to be or become an accountant.
What framework or step by step process is introduced to the reader?
The reader is introduced to the process by being shown what is required by the ATO and why setting out accounts in this easy fashion that only about 5% of businesses do, gives the owner more control over their business.
What anecdotes will be utilised to create empathy?
Accounts are very important
Accounts can make or break an enterprise.
Accounts that are well organised, are not that difficult to understand and give information to know how the business is doing and what decisions can be taken . . . if the chart of accounts is set out properly.
Accounts are more important than you realise if you want to make your firm profitable.
Accounts are not as important as accountants make them out to be
Accounts can be understood by anyone even if you do not understand maths. As the numbers are only there in order to make business decisions, and once understood, are not difficult to use.
Accountants best work is ensuring you pay BAS, PAYG and no more tax than you need to.
Once you understand the simple way to set out the accounts and read the numbers, making financial business decisions with become simpler and decisions more effective.
Points to consider
You will see that the ATO does not care about your sales breakdown, unless it affects the GST.
It does not care about the breakdown of any legally allowed expenses, except those relating to GST, wages or non-taxable items.
Situations found by micro and small firms
In the past, my clients have had to guess from the net profit or loss as to what decisions to make and the normal alphabetical list of expenses gives no clue to what the decision should be.
I have had a client wishing to sell their business. With a standard P&L and Balance Sheet, the potential buyer offered a very low sum. When the P&L was reconfigured into Gross Profit, Operating Profit and Net Profit, with the income and Nett being the same. The clear value of the company increased over 700% to the same buyer over night!!
Where clients have expenses set out alphabetically or generally without being grouped, it is difficult to know which more profitable areas of the firm are needing more financial aid and where spending is too generous.
Overall benefits of changing the P&L and Balance Sheet Structure
Each sized enterprise requires different management activities and structures. In order for the owner-manager to have a stable or growing enterprise, depends on how they manage the business. By having a simple financial structure, decisions are easer to make and offer a better return and result.