No business is designed to take losses. You would be hard pressed to find a small business owner that is setting out to lose money, and to not end up a successful business. 1-800Accountant helps small business owners maintain financial documents within the business so mistakes are not made and profits can be recognized properly.
Paying attention to profits can go a long way in helping a business, even if a profit does not seem likely all the time. Below are a few points to keep in mind when managing financial documents.
Profit Does Not Equal Cash Flow
Remember that cash flow accounting doesn’t tell the profit for the period. Profit does not equal cash flow. Just because you made a profit during a certain period, don’t get too excited about a sudden stream of cash flow. Credit sales are recorded as revenue before cash is ever received. Some expenses may be recorded after cash is spent, and some may be recorded before cash is paid. In order to find your profit, look at your P&L report; your Statement of Cash Flows will only determine your cash flow. Do not confuse the two.
Tools Can Help Financial Decision Making
For a decision making analysis, using a compact profit model is easier than the P&L report. For making these decisions, the P&L report is too bulky for use even though it is indispensable for controlling profit performance. Switching to using a compact profit model will get the job done in most cases, and make your decision making process easier.
Small Details Matter
Although it may seem like common knowledge, remember that small factors can certainly cause a big change in profits. Something as seemingly harmless as a small slippage in the ratio of margin on sales revenue can actually have a devastating impact on your profit. Additionally, a little boost in sales price can cause you to experience a great gain in profit.
1-800Accountant knows how important it is to monitor profits and losses. These tips are just a part of another step in building a business. Small businesses are designed to make a profit, even if that profit has not come yet. Every small change in your financial document has a larger implication.