Producing financial accounts may well be an administrative headache for a small business and many self employed businesses put off this essential business and reduce it to an annual event. There are major benefits that small business can derive from operating the financial system as an important part of the business management.
Big business invests millions in sophisticated accounting software and financial control systems because financial management is seen as a key to financial success. Many organisations ignores these benefits relying instead on personal knowledge and in some cases not even that.
Why would a large business that is focused entirely on the bottom line and growing that bottom line invest in bookkeepers, accounts clerks, accountants, credit controllers, cost controllers, financial directors and accounting software? The answer is simple. Detailed strong disciplined financial control is essential to protecting the financial health of the business and providing the financial framework to produce higher profit growth year after year.
All business functions are important for business success. 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.
Regardless of whether 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 analysed by product type or source of 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 intuition rather than hard financial facts.
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