What is so important about accounting? Asked very few people ever. When it comes to your companies health and growth, I would say the accounting is one of the most important Key Point Indicators (or KPIs). KPIs are used to assess the health of an organization for future growth. So why are your financials so important? What parts are the most useful? Who should know them?
Why is Accounting Essential?
If you were to correlate accounting with another field, I would say it most closely relates, figuratively, to medicine. Imagine your company is the body and the administration and C-suite teams are the brain. Your employees and staff are the organs and your customers are the food and water that every body needs to survive. Accounting is the pulse. It’s the heartbeat that let’s us know when we are on the up and up or a slow decline. sometimes it skips a beat from a financial hiccup and sometimes you can feel it slow as a company is coming to an end. The person with their finger on the pulse, on the financials, should always know how healthy the body (the Company) is based on that pulse.
And where do you check for this pulse? That’s also essential, because you want to get the most accurate reading. You can look at Revenue and say, “We made ten million dollars this year!” But if your expenses were eleven million, your pulse is gone and your body might be dead in the water. That’s when you draw the pulse from the top line. Instead, you should go for the bottom line, the true net profit of your company after everything is expensed and accounted for. This check will give you the most accurate diagnosis of the health of your company.
What Parts are most Useful?
That being said, when looking at the bottom line there are some things your team can fix and other things that, as the Admin or Owner, can only be fixed by you. Let’s start with your team, the harder part. Increasing Sales, or the Top Line, of your Profit and Loss Report. A company needs a ‘top line’ to be successful. Without it, you will have to do a lot more pruning to keep the company above water. But it is only half of the coin. So what are some ways to increase sales without spending too much more money?
1. Optimize Labor
This can be done in two ways starting with ensuring that all of your employees are in the right positions. You will never be optimized if the person who is best at Human Resources is out in the field doing Outside Sales. You can’t optimize labor if your Outside Sales Rep is inside trying to create appropriate Processes and Procedures.
Secondly, you need to optimize the use of the time given. If you have salary employees, you should be making sure that they are optimizing every hour of their shift to get more done. Making cold calls or sending cold emails may not pay out every time, but it’s something and costs nothing for a salary employee who has nothing else to do that day. Research. Send Emails. Visit Websites. Read News Articles. There are so many things that an employee can do to optimize their time.
2. Optimize Marketing
If no one is responsible for this, try to hire a teenager for the summer who can get some experience in the field and will do this job for very little. Or, like we did, hire on a full time adult whose job is to do these things. They aren’t hard, but they can’t be brushed off and left undone. Your ‘audience’ will be looking for you to keep those things updated. And in todays time, this is easier than ever.
3. Optimize Processes and Procedures
If you haven’t had time to check it out, here is a recent blog on the Importance of Policies and Procedures. Check it out for a little more detail on this specific issue. Beyond that blog, here are a few quick pointers in bolstering that ‘top line’.
Procedures should be used to make everything flow more efficiently. That works better for the employees and will also be a leading factor to adding additional time for Optimizing Labor and Marketing. The whole team should have a concise understanding for how to handle 80-90% of all situations that occur. That leaves the last 10% or less for creative solutions.
What about the Bottom Line?
It’s all just Accounting 101. Raise Sales and Reduce Spending. Any business that can do this, will survive and most will actually thrive! And after 2020 and the Covid Pandemic, our businesses NEED to thrive!! Let’s thrive together as we move towards a Brighter Tomorrow!
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