To prepare the financial
accounts may be a difficult task for an administration for a small business and
many self employed businesses put off this essential business and reduce it to
an annual event. The financial system is an important part of the business
management so there are explain major benefits that small business can obtain
from operating.
A large business invests
millions in complicated accounting software and financial control systems
because financial management is seen as a key to financial success. Many organizations
ignore these benefits relying as a substitute on personal knowledge and in some
cases not even that. A large business that only
focused entirely on the bottom line and growing that bottom line invest in
bookkeepers, accountants, credit controllers, cost controllers, financial directors
and accounting software. Why they do that? The answer is recording finance and
all transaction in detailed strong disciplined financial control is essential
to protecting the financial of the business and providing the financial
framework to produce higher profit growth year.
For business success all
business functions are important. Sales and marketing provide the growth
opportunities and production and operating activities produce the goods to
supply that demand but the finance function delivers the framework and analysis
to grow the bottom line.
A small business
maintains a manual system of bookkeeping to record financial transactions or
uses a package it is important that regular monthly accounts are prepared. And
having prepared a set of financial accounts those accounting statements should
be reviewed to grow the business.
By producing monthly
accounts that show the sales turnover preferably analyses by product sales the
effectiveness of the sales campaign is measured in real money. Such financial
information is required to determine where future sales and marketing efforts
are required to improve or discontinue a failing program or capitalize on a
successful program. Without measuring and analyzing sales performance
management action becomes a guess game based upon insight rather than hard
financial facts.
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Accounting software
produces a gross profit margin the business is earning on its products. A small
business when presented with the profit percentages can make decisions to
increase sales prices where possible to increase the profit or reduce cost of
sales as appropriate. The gross profit margin is vital to the business finances
and analyzing the margin to identify areas where it can be increased can
significantly improve profit performance.
A monthly profit and
loss account would show the level of expenditure in running the business.
Reviewing the monthly trends produced will often show some categories of
expenses going up and some going down. Critical review of costs can maintain
financial control and improve the financial performance.
A critical financial
feature of business is the level of gross profit margin in both percentage
terms and volume compared with the level of fixed expenses. By using this to
produce a monthly profit and loss account the business management can
immediately see and understand if that gross profit is sufficient. Action
should follow.
That is the benefit of
accounting software, the production of actual financial figures that indicate
where and how much action needs to be taken to improve the net profit
earned. That action may indicate a need to improve sales volume, increase
the gross margin through higher sales prices or lower direct costs or a
reduction in overhead and business running costs.
Financial control and
analysis that it can provide a business financial performance can be improved
and the bottom line increased.