Your books are great story-tellers. While your financial reports may seem like nothing more than a bunch of numbers on a page, they can reveal volumes about the health and direction of your company. Your books and records can tell the story of success, growth, or challenge.
What are some of the stories that your books can tell?
Your business makes money – “How much money did I make” is usually the first thing on everyone’s mind. Profitability is often seen as an indication of a successful business. If you’re bringing in more money than what you are spending, that’s a good start.
You can’t stop there. Be sure to take a closer look at your revenue and expenses.
Is there room for more profitability? – One approach to improving profitability is to sell more of your products or services. Consider a few things;
- Are add-on services or products an option? If your company performs IT services, are ongoing maintenance contracts an option? Should you expand your product offerings to include hardware?
- How do your prices compare with your competitors? Are they higher, lower, or about the same? If you are finding that your prices are lower than your competitors, you may not be charging enough to cover your costs. If your offerings are similar to your competitors, you may be pricing yourself out of the market if you are charging more.
- If you sell multiple products or services, which ones stand out? Which ones are you spending the most money and time selling? If you find that you are spending more effort selling a product that generates a low amount of profit, you might consider focusing your efforts on products or services that have a higher return.
While the common approach to improving profitability is simply to increase your sales, it’s not the only plan. Take an overall look at what you are spending for the month and for the year.
Determine if these payments are:
- Absolutely necessary – Expenses such as rent, utilities, and insurance are typical expenses that you would expect to pay every month. You may have some leeway to reduce these amounts when you renew your lease or insurance policy. If you choose to install LED lights or updated thermostats, you may save on utility bills.
- Important, but may be improved – Some of the expenses we pay each month are necessary, but amounts may be further reduced. Phone bills and internet service are great examples where you may be able to negotiate a lower amount if they have a better service plan available. If you have a seasonal business, some utility and credit card companies may allow you to put a “hold” on your account, which allows you to pay a smaller fee to keep the account open, but not the full fee until it’s in use.
- Nice to have, but not necessary – These are the expenses that can be reduced or eliminated. Meals and entertainment expenses often fall under this category. Perhaps choosing less expensive restaurants or limiting the dollar amounts spent will keep this under control.
Small changes that you make to recurring expenses can have a significant impact over time. Even saving $100 per month will add up $1,200 for the year. Money that is spent on non-essential items should be re-evaluated. Companies that pay monthly bank service fees may be able to reduce these expenses, even eliminate them, if they switch to a different bank.
If you sell a product or service that has a direct cost, analyze how profitable it is. Are you making enough of a margin to cover your indirect costs, such as rent, utilities, and administrative payroll? If not, you may be paying too much for their direct cost or you aren’t charging your customers enough.
Can you pay the bills? – While a statement of income can show that you are making a sizable profit, that’s only part of the picture. A company’s liquidity, or how much money they have to pay bills, tells a story as well. Comparing your current assets against your current liabilities can give you a quick snapshot of your liquidity.
For example, if your current assets are $100,000 and your current liabilities are $50,000, you have two times the amount needed to pay your bills. That’s a good position to be in. If the amounts were reversed, a company could run into a cash flow issue if they need to pay $100,000, but only have $50,000 available.
What does the company value? – Many companies have mission and vision statements on their websites. A business of any size can adopt a corporate social responsibility program. But is what they are paying for consistent with their plans?
You can tell quite a bit about a business by the way in which they choose to spend their money. Companies that are employee-focused typically spend more money on training, recruiting, and benefits. For those who are looking to grow or innovate, disbursements for technology, new staff, or equipment would be expected. Those that offer programs with a charitable intent should have donations being made. How a company spends its money can reflect what they value.
Is your story current? – The story your books tell is only as good as the record-keeping that goes into preparing them. If your books are behind, what does this mean? If you are a sole business owner and are struggling to stay on top of things, a set of books that is months behind can be a signal that you have too much on your plate. You may want to consider outsourcing this task. Not only does come off of your plate, but it will also actually give you more control over your company’s finances as your time will be spent reviewing financial reports, not preparing them.
When your books are behind, it can also tell a story that management doesn’t place much emphasis on keeping current records. If you are looking to obtain a loan from a bank or purchase equipment on credit, this is not a story that you want to tell.
Books and records can reveal many things about a business – where it is successful and where it can improve. The most accurate story can be told when your accounting records are current. Since 1990, Valley Business Centre has helped small and medium-sized businesses stay current with their bookkeeping and payroll functions. We serve clients through the BC region and beyond. If you are struggling to keep your bookkeeping and payroll up-to-date, we can help. Contact the bookkeeping specialists at Valley Business Centre today.
Clients and sales are typically the top focus for any company. Without a consistent stream of revenue coming in, it would be difficult to pay employees, rent, loan payments, and pretty much any other expense that is necessary to run a business.
While we typically shine the spotlight on the client, the relationships with the companies that you purchase goods and services from can take a back seat. These are considered vendor relationships. After all, you are paying for a vendor’s products or services, what more do you need to do?
Building and maintaining strong relationships with your vendors brings several strategic advantages to your company. Vendors can directly impact your bottom line, help you grow by becoming a potential referral source for new business, as well as build your reputation.
Vendor relationships and your bottom line
If your company sells a product or service, you likely rely on outside vendors to conduct your business. Some vendor relationships are obvious, others are not. Companies often use vendors and suppliers to;
- Purchase parts or materials for products that are sold
- Provide creative and consulting services, such as marketing, design, and communications
- Computer and technology services
- Office supplies
Suppliers of goods and services will vary based on industry. Restaurants have food and beverage suppliers, doctors and dentists have vendors that provide medical equipment and supplies, and a technology company may rely on outside consultants for its software and hardware needs. Remember that relationships also exist with landlords, insurance agents, and bankers.
Establishing and maintaining good relationships with your vendors can be a key strategy in keeping your costs low. A good track record with your vendors can lead to better pricing, as well as discounts and special promotions. Moreover, if you’ve fallen on hard times, a strong vendor relationship can help when working out payment arrangements and avoid disruption of services. This can be critical if you are highly reliant upon third party vendors to conduct your business. Finally, connecting with the right vendors can give your company an advantage over the competition. A vendor’s reputation and standing within the industry can lend credibility to a company.
Vendors can help your business grow
Companies prosper when their customers do. When you maintain a good relationship with your vendor, they can be excellent sources of new client referrals. After all, you are the customer to your vendor. Your success benefits them as well.
In other cases, a business that is planning to grow or expand in the future may be in need of credit. Vendors are good sources for credit references when seeking a loan or line of credit from a bank. In some cases, you may be seeking more favorable credit terms with the vendor. Maintaining a healthy relationship may assist you with receiving the financing or credit you are seeking to build your business.
Vendors can build your reputation, or damage it
Your relationship with your vendor can also impact your reputation. Treating your vendors respectfully, paying them on time, and proper communication can go a long way in building a good reputation in your community or within your industry. Conversely, a poor working relationship can damage your reputation, potentially costing you customers, savings, and even other vendor relationships.
Choose vendors wisely – When selecting a new vendor, spend time reviewing their proposals and contracts. Ask questions and nail down the specifics of the arrangement. Finally, it is helpful to understand how they do business and meet deadlines. Choosing vendors that provide quality products or services that meet your timeframe can be critical to the success of your business, as well as the relationship with the vendor.
Pay your bills on time – Be sure to pay your bills on time. If you have a seasonal business that impacts your cash flow or if you know that you may need extended credit terms, discuss this with the vendor before you make the purchase. While emergencies and unforeseen events can happen, regularly paying your vendors late can cause ill will in your relationship. Partnering with your vendor on payment-related issues can help them to become a solution to a problem. Remember, if you are unable to pay your vendor, they may be unable to pay their employees or their bills. This creates a stress on everyone. .
Take care of your vendors – Putting unrealistic deadlines or undue pressure on your vendors to deliver is a quick way to cause problems. Holding a vendor accountable for agreed-upon quality or delivery should be done respectfully. As a customer, if there are practices that you can follow to help the vendor meet your needs, find out how you can help. Perhaps it is a face-to-face meeting, documenting established timelines, or submitting a request in writing. Learning how to work with you vendors will help you to take better care of them.
Remember – you are the customer – Keep your vendors apprised of your business. Let them know when your company has achieved certain milestones, if you are introducing a new product or service, or are undergoing personnel changes. Good communication can solidify a relationship. Consider making visits to key vendors, just as you would with your customers. Meet them in their space and take the time to discuss how you can work better together.
The experienced bookkeepers at Valley Business Centre have delivered quality service to small and medium-sized businesses since 1990. We provide bookkeeping and payroll services to clients located in Whistler, Squamish, the Sea to the Sky corridor, BC, and beyond. We can help your company keep your books current and run payroll. If the daily stress of maintaining your bookkeeping or payroll systems are dragging you down, contact the bookkeeping specialists at Valley Business Centre today.