This month, Jack Posner (principal) and Darren Stone (manager) of Leon and Company Chartered Accountants in Leeds write about how to use accounts to improve business results.
Not long after the recent election, a high-profile Baroness was being interviewed on Radio 4 about the economy, and during this she referred to accountants as being hard-headed and only interested in numbers. Although this was only a passing remark, it really got us thinking….are we really just number-crunchers?
Actually, one could argue that this sentiment couldn’t be further from the truth. Accountants are also business advisers, and indeed, good accountants look far beyond the numbers.
The numbers reported in a company’s accounts tells a story. And it is this story that allows business owners to understand their own businesses better. And more importantly, allows them to bring about improvement and steer it in the ‘right’ direction.
Much can be learned from ‘reading’ the accounts. For example, take your most recent set of accounts and compare the income with that of the previous year in the comparative column. By comparing the two figures, you can precisely quantify by how much your business has grown (or shrunk) since last year. You should quickly be able to deduce why this is. It may the result of an increase in your volume of sales, or indeed a change in the mix of your products or services.
Further exercises can be carried out, like looking at how much of your income is converted into profit – this is known as the gross profit margin. A high percentage shows that you are enjoying a good return on the stock you buy. Moreover, by comparing it to the margin in the previous year, you can deduce if you are increasing or reducing your profitability over time. To increase it you may need to negotiate a better deal on your purchases, or even review your own pricing strategy.
Clearly this is only a flavour of what is possible, and also a generic example. But I am sure we have demonstrated that from just a preliminary reading of the accounts, one can make informed decisions for the future. This is very empowering and should go some way to proving that accountants do look far beyond the numbers.
