Your passion about what you do and your business is not enough to keep its doors open. You need to make the right decisions and maintain good financial health.
What better way to get a crystal clear picture of your business’ financial position than to check your financial reports and statements? Although preparing these reports is tedious and time-consuming, accurate and updated accounting information is important in running a business.
This is especially true when you need to make critical decisions. So how exactly does timely financial data help in the business decision-making process?
How Business Owners Use Financial Information
Regardless of how small or big your business is, you need updated accounting information to make well-informed decisions on several important areas of the business.
For instance, you need hard figures when deciding on the budget for a specific period of time. The updated set of financial data lets you know things like your profit or loss in the previous year, the increase or decrease in the cost of goods or materials, budget line items that can be removed or replaced, and many others.
Consequently, if the numbers suggest that you’re ready to scale your business, you may be able to decide on purchasing additional equipment or hiring a new employee. Some of the documents you need for preparing your budget include accounts receivables, accounts payables, balance sheet, and profit and loss statements.
By knowing how much you actually have, you’ll be able to decide how much you can spend, if you need to apply for a loan, seek additional financing from investors, among other things.
Before you get approved for a loan, you need to present your updated accounting information to see your creditworthiness. Based on these financial data, lenders can decide if you’re qualified or not and how much they’ll allow you to borrow. Normally, creditors will require you to provide your income statements, cash flow statements, business tax returns, and balance sheets.
Similarly, investors need your accounting information so they can determine the value and potential of your company. Is your business in good financial health? The data you provide will allow them to calculate profitability and gauge the risk before they provide you with capital.
Furthermore, your updated financial information will also help you manage your business more effectively by letting you know which projects or products are worth pursuing and which ones are better off to be discontinued.
You can also calculate the anticipated return on investment of a new project that you’re considering to launch. Additionally, conducting a cost-benefit analysis which allows you to evaluate how an initiative’s projected benefits compare to the costs involved will help you make data-driven decisions.
Accurate and Updated Recordkeeping is Key
So we’ve established the importance of accounting information in decision making by providing some scenarios on how business leaders use them. However, it’s important to note that your financial data is only as good as your recordkeeping.
There are many ways to record your financial transactions and activities. You can use pen and paper, traditional spreadsheets, and filing cabinets.
However, what we would recommend as the best tools for recordkeeping are cloud-based accounting systems. Say goodbye to multiple spreadsheets, repetitive data entry, and an overall time-consuming process.
Through cloud accounting, you’ll be able to access your books and financial data anytime and anywhere. From the digital storage of your receipts and documents to the reconciliation of your accounts and preparation of reports, these tools are the best ones available at your disposal.
In just a few clicks, you’ll be able to check the financial health of your business and make wise decisions quickly. Ultimately, this gives you peace of mind and more time to spend on doing the things you love.
Work Closely WIth Your Accountant
Remember, the best business decisions are not made by following your instinct, gut feeling, or emotions– they must always be supported by the latest relevant data. Keeping track of your organization’s past and current financial performance by monitoring gross profit margin, working capital, return on equity, and other KPIs can help you understand your business’ financial health and figure out what needs to be done.
However, even if you have all the reports and financial statements, without a background in finance, it can be challenging to decipher what your numbers mean.
This is the reason it is important that you have a trusted accountant such as Lear & Pannepacker who can explain these financial data in a language that you can easily understand. They can also provide advice and guide you in making sound business decisions that impact your bottom line.
So if you’re ready to improve your business decision-making process, start listening to what your numbers are telling you and hire an accountant who can help you see the bigger picture.