1300 731 118  /        

BIAS (Aust) Pty Ltd

Where business owners go wrong when measuring business performance.

ALL POSTS

Business owners are constantly conflicted when it comes to measuring business performance and often do not understand the difference between their cash position and their profit position.

 

Most business owners today would be using some form of software or application for the recording and bookkeeping of their business financial affairs. The most common ones are MYOB, Xero and QuickBooks. They all do a great job, however the information that comes out of these software systems, forming the basis of all our business performance decisions, is only as good as the information that is put in by a competent bookkeeper!

 

A fundamental problem occurs when reliance is placed on the bank balance to make spending decisions. When business owners look at the profit & loss generated from the software and it shows a profit – they think ‘’great’’! The next question that comes from the business owner is “but where is all the money?”

 

Business owners are often baffled that their business is “supposedly” profitable but they never seem to have any surplus cash! The problem is further magnified by the process of making spending decisions based on the available funds in the bank account or overdraft. Whilst this may seem harmless and even a logical process, it is fraught with danger. Spending, based on bank account balance does not take into consideration the looming liabilities accumulating each day, month, quarter and year.

 

The problems start to surface when BAS, IAS or Income Tax is due, only to find that there is in-sufficient funds to cover these payments. Then the process starts of “robbing Peter to pay Paul”. Whilst most businesses seem to recover, they are constantly in this vicious cycle and never have any surplus cash. There is a lack of understanding that the bank balance does not elude to the fact that not all the money is yours. GST, PAYG, staff entitlements etc. all need to be paid for, but do not necessarily affect your profit & loss. Then of course you will need to pay income tax on your profit which also does not appear in your profit and loss but must come out of your cash flow.

 

Successfully navigating your way through these problems can only be achieved by careful planning, implementing sound strategic methods, properly prepared budgets and cash flow forecasts. Understanding what phase your business is in and what you want to achieve out of your business is paramount. It simply comes back down to the old cliché to spend more time ON your business not always working IN the business!

 

LATEST POSTS