How to understand your Financial Statements - let's unlock the mystery!

Have you ever wondered why some business owners seem to make all the right decisions & others can't seem to make any decisions? Part of the reason relates to being able to understand their financial statements, but more importantly interpret the statements, and use them to make decisions that have a positive impact upon business results.

Whether you are a budding business owner about to embark on the journey of starting your own business or you are a seasoned campaigner with many years of successful trading under your belt it is an absolute must that you can read & understand your financial statements.

We can all drive a car (well most of us), but can we all read a road map? To arrive at your destination you need to be able to interpret the information at hand. So whether it's simply driving your car or more importantly, driving your business, you need to have the skills & know how to make the best use of the information available to you.

The critical components of your financial statements are:

1. The Profit & Loss Statement  
2. The Balance Sheet 
3. The Cash Flow Statement 

Each of these components of your financial statements tells a different story, but collectively they tell the entire story of your business. The secrets to growth, profit, cashflow, business value and much more are locked away in these reports. You just have to know how to read them!

Many business owners miss out on the opportunity to improve their businesses because they don't understand how to unlock the secrets contained within their financial statements. These documents should not be for the sole benefit of your Bank or the Tax Office, they are there for you as the business owner.

Today I came across this  straightforward, plain English, simple presentation that provides a great analogy between an apple tree and your Financial Statements. I won't ruin the surprise for you other than to say that (even as an accountant) I found this to be a really useful tool in understanding what it is our financial statements tell us.

Understanding financial statements

So how was it? Does it make a little more sense now? I'd love you to share your thoughts with me.

If you are a business owner that wants to remove the mystery from your financial statements and really drive your business forward then please call or email, I'd be thrilled to assist.

Choosing the right accountant for your business. Are you looking in the rear view mirror or focusing on the road ahead?

Is your business accountant the best one for you? It really depends on what you want from your accounting relationship. But as a starting point it helps to understand whether you want an accountant that:

1.      Helps you record history; or

2.      Helps you make history

The best accountants help you make history. They don’t just stand by and wonder what happened in your business in the past year, they actually work with you to understand your goals, set plans to get you and your business from A to B and help you make things happen. They are not looking in the rear view mirror they are focused on the road ahead. More specifically, your road ahead.

It’s not just about the Tax Office! Rather than only keeping the ATO happy by lodging your Tax Return each year, the best Accountants are helping business owners with tax minimisation, asset protection, improved profits & cash flow, building a valuable asset that is 'sale ready', implementing accounting systems that make life easy, having a business that provides the time and finances to support their personal goals etc.   

The best accountants are proactive. They offer great service and a great range of services. These accountants help you to create wealth and keep wealth. They do it by speaking with you regularly, listening to gain a true understanding of your goals and challenges, offering transparent solutions, speaking with you (again), listening (again), speaking & listening, speaking & listening, speaking & listening ……………… They treat you as a client and care about you.  

In my view the best accountants have 4 main purposes:

1.      Helping clients to set and monitor business and personal goals;

2.      Helping clients to create wealth;

3.      Helping clients to keep as much of that wealth as possible;

4.      Helping clients to comply with their reporting obligations.

I have interviewed many prospective clients over the years (usually when they are looking to change accountants) and the most common answer that I hear when I ask the question “Why are you changing accountants?” is that “They were not proactive enough”.

So what does proactive actually mean? Is it all of the things I have outlined above? Do business owners actually know what they mean when they say their accountant was not proactive enough? What is it that they were expecting from their accountant? Did the accountant know that he or she was supposed to be anything more than a recorder of history? How did they know? Was it discussed? Were they listening? Did the old accountant even offer the services that help you make history? Some do, some don’t.

To find out what we believe proactive means please click here to see the 20 things that proactive accountants do differently from reactive accountants.  ThePrimeAdvisoryGroup - Reactive vs Proactive

Want a proactive accountant? If you would like to come in for a complimentary meeting to discuss what it is like to partner with a firm of proactive accountants then please call me on (02) 9415 1511 or email me. I guarantee you will be glad you did!