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Monitoring your business;

Monitoring your business

Summary: 

1. The importance of balance sheets

2. The different steps

 

 

 

Some business owners will know this, but monitoring your business is very important.  Not just looking at the sales, and costs but the balance sheet as well.  For some, including me, you are likely to think this is a given, but throughout my years it still comes as a shock that some business owners are not aware of what is going on.  

 

Over the years I have experienced numerous over-payments to different organisations, not just suppliers but also pension providers.  Un-chased debts dating back two or more years, balances on accounts which no-one knows about.  A point here is cold hard cash, we need cash to survive, we need cash to pay our employees, our suppliers and HMRC, without it a business may not survive.

 

 

1. The importance of balance sheets

 

When we work with a new business, one of the first actions we take is to review the balance sheet, this is everything outside the profit and loss for a business.  The balance sheet will in basic terms tell you what you have, what you are owed and what you owe.  For us, this is as important as the profit and loss.  Yes, we need to make a profit, but if we are not managing what is going on behind the scenes we might get in trouble. 

 

Working through the balance sheet can be time consuming, and in some cases complicated, you need to understand what the balance sheet is telling you and then work out how you got there.  For us, the most important reconciling item is third party independent data, for example a bank statement, which can be reconciled against all transactions posted to the bank account in your accounting software.

 

 

2. The different steps

 

Where to start, we would start with the aged receivables and chase any outstanding debt, we want to get as much money into the business as possible.  Then look at any over payments to suppliers, and request this is refunded.  Then can come the more complicated bit, and where an expert will help, reconciling payments to elsewhere, reconciling the bank and looking for onerous payments.  

 

Unfortunately, you cannot take what the balances are telling you, we’ve work for an organisation where the pension liability was zero, but when this account was reconciled, the business had overpaid the pension provider more than £10,000.  This is not small for any business, and who’s pocket would you rather this be in.

 

It is better to take your time, ask questions, prod, and poke, ask for evidence.  This is your business, your money, your livelihood.

 

If you want to understand more, please contact us.

Thanks GMS Business Accountants.

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