Are you having a money huddle?

Are you having a money huddle?

Now you have your business paperwork all sorted and you have a regular maintenance process each week to keep on top of it, it’s time to review your results and see what’s working and what isn’t.So where do you start? Well, as long as your business information has been reconciled (checked) you can start to look at your numbers – how exciting! You might also be feeling a little daunted because you’ve been in the dark for so long you’re actually petrified about what your results actually are. That’s okay – a little bit of dread is good, because it means you care about your business. It’s not just a hobby, you actually want it to succeed.

So what information do you need to look at? I recommend weekly reports as it is much easier to make changes within a month then after the fact. It can also be dependent on how often you are updating your system and reconciling your bank and credit card accounts to ensure your data will be accurate for reporting. You should at least look at the following:

Weekly or Monthly reports

Cash method of accounting (transactions only entered in accounting system when paid)

  • Profit and loss
  • Balance sheet
  • GST Summary (If registered for GST)
  • PAYG Summary (if an employer)
  • Bank Balance

Accrual method of accounting (transactions entered into accounting system before paid)

  • Profit and loss
  • Balance sheet
  • Accounts Payable (monies owing to suppliers)
  • Accounts Receivable (monies owed by customers)
  • GST Summary (If registered for GST)
  • PAYG Summary (if an employer)
  • Bank Balance

Let’s start with the profit and loss report. Your type of business will determine the exact type of revenue and expense accounts you have, but basically you should have some of the following:

  • A form of revenue
    • Sales of products
    • Services
  • Expenses
    • These relate to the sales (i.e. cost of sale)
    • Administrative expenses (relating to the running of an office perhaps)
    • Advertising/Marketing expenses
    • Employee expenses
    • Property expenses (relating to the rental of a premise including utilities)
    • Financing expenses (relating to the funding of the business)
    • Motor vehicle expenses
    • Training expenses (yourself or employees)
    • Communication expenses (i.e. telephones, internet, mobiles)

Now the net result of the revenue less the expenses will result in a profit or loss, thus the name of the report. So do you have a profit? Or do you have a loss?

If you have a profit it means that your revenue (i.e. money that is being earned) is greater than your expenses (money being spent). If you have a loss, it means that your expenses are greater than your revenue (i.e. you’re spending more money than you’re earning.)

However what happens to the rest of the transactions? Well that’s where the second of our reports comes into the equation, the ‘balance sheet‘. A balance sheet will show the net wealth of your business. See examples below.

A balance sheet can consist of such things as:

  • Assets
    • Bank accounts
    • Debtors (i.e. monies owed by customers)
    • Office equipment
    • Buildings etc
  • Liabilities
    • Credit cards
    • Bank loans
    • Creditors (i.e. suppliers owed)
    • GST obligations
    • PAYG obligations
    • Super obligations
  • Equity
    • Capital introduced (i.e. monies put in by you)
    • Drawings (funds withdrawn from business for personal use)
    • Profit (loss) to date

An Accounts Payable Report will show you the balances owing to your suppliers (if you use accrual accounting). It will also show how long you have owed them and whether they are overdue for payment. This is useful so you are aware of payments that will be required in the short term.

An Accounts Receivable Report will show you the balance that your customers owe you (if you use accrual accounting). It will also show you how long they have owed you and whether the payment is overdue. This is useful to keep track of monies that have yet to be paid. If anyone is falling behind on payments you can quickly alert the customer.

A GST Summary Report is useful for you if you are registered for GST. This will show you the net balance of GST received from customers and GST paid out to suppliers. If it is a positive number then you owe this to the ATO. If it is negative number this is the amount you will be refunded. It is useful to track this report to be aware of monies that you will potentially owe to the Tax Office. It assists in managing your cashflow.

The PAYG Summary Report is a summary of all amounts paid to employees including the tax deducted and superannuation accrued. This report is useful as it shows the tax that you will need to submit to the ATO on behalf of your employees and the superannuation that you will need to pay when it falls due.

The last thing you need to monitor on a regular basis is your bank account and credit cards. You need to know your cash position and also your credit position if you use credit cards (see my article about managing credit cards).

Now that wasn’t so scary was it? You have taken a giant leap for your business and you’re no longer in the dark about your businesses financial position. Good for you!!!

I know that these reports can be a little difficult to understand so stay tuned for the next newsletter which will help you make sense of the numbers in your reports.

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