Do you, as a business owner, support your decisions with insights from the “holy trinity” of financial statements: the profit & loss, the balance sheet, the cash flow? I speak with many business owners who are too shy to admit to their accountant that they actually don’t know how to read those arcane reports, except to pay the “net tax owing” that appears somewhere near the end.
If you look at your accountant’s letter of engagement, you may well find that their job does not include helping you make decisions on the basis of the financial statements. Unless you have specifically engaged them for management/advisory work, don’t assume preparation and compliance includes helping you decide what to do next. We need those accountants doing what they do best, but they don’t own or run your business; that’s a very different perspective indeed. I’ve seen people get into treacherous waters, and worse, because that difference of perspective was not understood.
I had an owner tell me he knew he was doing ok if the bank balance was increasing every month. The upshot of that over-simplifying was that he was leaving money on the table, every single month. I’ve seen people not realise (and not be advised!) that a line on the balance sheet told them they were deep in debt, and getting deeper. I’ve known an owner-manager ignore an error that gave him greatly overstated margins (false confidence) and also inflated “fixed” costs (so he was looking for the problem in the wrong place).
If, at this point, your eyes are glazing over and your sleep deficit is tugging at your elbow, wake up. The ATO will tell you how much money you owe them – that’s the long and the short of their interest in your business. Compliance work tells you the statements conform to the Australian Accounting Standards, and that the ATO ought to be content with that.
They are both doing their job – but neither of them can or will tell you if the tide is running in or out, if you’re headed for a shoal, or if you need to change course. Making critical decisions about business direction is your job, and you need to understand “the numbers” to do it well.
Are you ready for a clearer view of where you may be leaking money, or what you should work on next? Give us a call, book some time, and find out about our “Five-Line P&L™” approach, how your balance sheet is actually a movie frame, and why the point of your cash flow statement is to prevent you kidding yourself.
Here’s a link: https://calendly.com/upland-iain/power-hour
Or email iain@upland.com.au
Disclaimer: no, I’m not an accountant, and I can’t give you accounting advice. My job is to help you see what to do with what your accountant gives you.