To have a profitable business in Melbourne, it takes more than being successful in the frontline. Being profitable involves know where money in your business is going and whether cash inflows are exceeding cash outgoing – and that means being keeping up with your business accounting. For businesses, there are three documents you need to stay on top of to ensure you are not running your business into the ground – and importantly, having information to measure success in your business.
A balance sheet essentially tells you what your business is worth in a static point in time. The value of your business is based of the fundamental accounting formula:
Assets – Liabilities = Owners Equity
One important aspect of this perspective is illustrating how your business is being financed. Having a higher value of liabilities mean that your business is mostly funded by borrowed money. Whereas having a higher owner’s equity value means that the business is relying on owner’s capital for financing. The optimal ratio between liabilities and owner’s equity will vary between companies and industries, so if you are unsure, seek advice from a trusted tax accountant in Melbourne.
Profit and Loss Statement
On a profit and loss statement, you will see your income and expenses over a period of time. From document, you can confirm whether your business income was meeting its expenses over that period of time. From there, you may need to consider reallocation of budgets or price changes to ensure profitability in the future.
Cash Flow Statement
The cash flow statement will show you how is money coming in and out of your business over a set period of time. One fundamental figure to look out for on this statement is the net operating cash flow. Ultimately, net operating cash flow tells you how much money you have left over after paying the bills. For a business, it is important that you maintain some liquidity funds, as this will allow flexibility in responding to sudden financial changes or threats.
Depending on the operational complexities and organisational structure of your business, accounting can become quite confusing for a person – even with accounting experience. So do not feel bad asking advice from a reputable tax accountant in Melbourne about efficient and reliable business accounting.