Running your company is a proactive process. You’re driving growth, improving efficiency, and setting goals. All for the purpose of taking performance to the next level. On the other hand, many business owners see the accounting side of things as reactive.
- Scanning/recording receipts
- Collecting accounts receivable
- Paying people for the previous pay period
- Even checking the amount in your accounts
All of these activities give the feeling our finances are a chore, at times. While this list of “to-dos” is necessary, it’s also not a fair look at how accounting actually links to the proactive side of a business.
Chances are, that if you think of your accounting as a chore, you’re missing out on some powerful assets in your decision making tool box.
Goals are Only Valuable with a Plan
Quality objectives often use data coming and going. If you want sales to grow, you’ll likely look at past performance. That’s data. Even if your venture is relatively young, you’ll look at competition or the market, in general.
After setting the goals, you’ll need to have a plan. The best plans are broken down into objectives, key expected results, and detailed ideas/tasks to propel you toward the overarching goals. And it’s here finances come into play.
In order to clearly tie your finances to goals, here are four examples of common business goals found in many companies (at one point or another).
Use Accounting to Track and Accomplish Goals (4 Specific Examples)
1. Improve Profitability
Sometimes you like the number of customers coming in, but don’t see the margins you imagined. Or you want to expand and don’t see how to do it with cash on hand. Using a couple of key trackers gives you much more insight into becoming more profitable.
Two Ways to Connect Accounting to Improve Profitability
- Cost of goods sold: Knowing how much it takes to create your products or deliver services is great for highlighting ways to reduce costs.
- Improve cash flow: Cut expenses, refinance loan terms, and really get caught up on accounts receivable. Then, use that cash flow to better negotiate the cost of goods or make purchases that improve overhead and the speed at which you produce goods/services.
2. Decrease Debt or Get Favorable Loan Terms
Many businesses have debt and others want a good loan to meet demand and continue growing sustainably. Working to pay off debt or getting the best terms on a new loan are easy things to connect to finances.
Connect Loans to Finances and Accounting
- Sound accounting practices: Banks look deep into the month-to-month of your business. If you’ve slipped on the maintenance, it’ll show. Clean books and solid reporting are like a good handshake, or first impression.
- Quality budgeting: Paying off debt is about planning bigger payments and making sure you stick to a budget. Knowing about how much you’ll spend, followed by a good idea of income allows you to figure out an approximate date for paying off burdens.
3. Expand Products/Services
Opening up new revenue streams through other products and services is a great (and common) way businesses grow. Accounting, when done correctly, improves the chances for your new sub-ventures to succeed.
Use Accounting to Build New Products and Services
- Incentives and Tax Credits: Incentives, like the Federal R&D Tax Credit, help businesses who develop things that improve the world around them. Planning and tracking expenses to take advantage of these help you recoup costs to develop new products.
- Profit and Loss (P&L): A detailed P&L shows what products/services currently work best, showing potential for related opportunities for cross-sales (if you develop something that compliments your best current offerings).
4. Attract Investors
There are a number of ways to fund your business. One of the most popular options, over the past decade, is through investor funding. Startups especially love courting venture capitalists to see their vision put out into the word. A good idea and a big pool of customers are prerequisites, but the best investors want to take a look under the financial hood, too.
Accounting to Attract Investors
- Forecasts: Venture capitalists love to think about the future. When are you going to be profitable? How quickly will they receive an ROI (either through revenue or further funding)? Accurate forecasts give an account of what’s possible.
- Stock Options: Sometimes the best investors are the ones who work with you. Exploring and setting up incentive stock options (ISOs) or non qualified stock options (NSOs) help attract talent and bring a sense of ownership to your team.
Partner with a Proactive Accounting Solution
Ready to get reports that actually help you run your business? Want to see the data that helps know when to make big purchases, seek funding, or improve profitability?
At Adian, we have the experience and services to turn your reactive financial practices into sound accounting solutions. If you’re ready, reach out for a free consultation and schedule a call with one of our experts.