The accounting and payroll systems within a business are akin to the nervous system within the human body. It can signal when the business is experiencing pain and when the business is doing well. Just like when people ignore ongoing chest pain and finally end up in the back of an ambulance, a business can end up in the hands of the receiver if the pain signals from the accounting and payroll systems are being ignored by the owners and managers. The 3 key accounting system “nerves” to look out for are accounts receivable, expenses and net profit. Modern small business and payroll software Australia solutions can provide this nerve system for your business.
A sale really isn’t a sale until you actually get paid in full by the customer. As long as customers pay in accordance with the payment terms on the invoice there isn’t a problem. However, sometimes customers don’t pay on time. Then the accounts receivable balance starts to swell. The accounting system should be warning the business that, like a lump on the side of your neck, the growing balance will begin to threaten the business if not treated soon. Customers have a seemingly inexhaustible number of excuses as to why they will be making their payments next week, a reality that businesses of all sizes have to come to terms with. A business needs to retain its customers and often providing extended credit is seen as a way to enhance that relationship. That’s fine if the payments are actually received. However, if the accounts receivable balance keeps growing then, like a growing lump on your neck, finally restricting and ballooning accounts receivables until is closes your cash flow and you hear the sirens of the ambulance. The only thing more expensive than building a business is resuscitating one.
Business like humans run best as lean machines. When expenses grow, just like your waistline, then the business slows down and becomes less profitable. Eventually, if left unchecked, it will lead to the demise of the business. The problem is that just like a couple of extra inches on your waistline, it happens slowly and all too often there are excuses for not dealing with the problem today. The accounting system will provide owners with clear reports on expense ratios, just like the holes in your belt, letting owners know what is going on. There may be short term reasons for the blowout, think Christmas celebrations, but as long as expenses are managed, the business will once again be a lean profit-making machine.
At the end of an annual physical check-up, we all hope that the doctor will tell us ‘everything looks fine and keep doing what you are doing to stay well’. For a business, net profit is the same as the result of a physical. If the net profit falls below the owner’s expectations then clearly something is wrong and something needs to change. The firm’s accountant, just like the doctor, can provide guidance on where to look for the source of the problem and how to get back on track. If the net profit meets or exceeds the owner’s expectations than it certainly has been a good year. Unlike annual physicals, a firm can monitor net profit on a monthly basis to look for early signs of problems. Swift action following a poor monthly result can be the difference between a poor year and a great year.
The accounting and payroll solutions will assist owners and managers to both manage and monitor their business. Just make sure they are on the lookout for, and act on those warning signs before your business is at a point where it cannot recover.