As a freelancer, sole trader or small business owner, other than knowledge of your own trade the most important thing to keep on top of in your business are the numbers. Income, expenses, cashflow, projections, first hand knowledge of these will prove to be the most important information you will have to hand and without them you could easily jeopardise your business! But with efficient bookkeeping and a good accountant, you will be on the right path and will have full control of the fundamental financial areas of your business, such as…
By looking at up to date information you can identify overspending in a particular area and nip that spending in the bud before it goes out of control. If you are reviewing your accounts once a year as part of filing annual returns, that overspend will mount up month upon month so a monthly review is great for cost control as well as cash management.
Improved Business Decision Making
By reviewing up to date management accounts you can see month on month how much profit you are making and assess whether you can truly afford to take on additional expenditure, rather than just adopting a qualitative view.
The ability to view your result each month allows you to compare your actual results to those that you forecasted as part of your business plan or annual financial forecast. You can analyse out where there are differences and learn more about how your business is performing and make changes where appropriate. Say, for example, sales are ahead of your original forecast you can analyse out where your actual sales are coming from and adapt your sales plan to focus more on this more fruitful area if you desire.
Some tax planning needs to be carried out and implemented before year end for example: making capital purchases to taken advantage of the Annual Investment Allowance. If you provide your accountant or tax advisor with up to date management accounts before your year end passes they can review your most recent position and work with you to offer you the best advice possible.
Why is all of this important?
You won’t be able to run your business for very long without sound knowledge of your business finances, and working month to month rather than waiting till year end, will keep you one step ahead of the game. Being prepared for the financial year ahead allows you to think about what your next moves are, whether that’s expanding your business, taking on an employee or investing in a new property.
If you feel your small business could benefit from monthly management reporting then get in touch with us here at Magpie Accountancy.