Accouting Software Is A Tool To Make Business More Profitable
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Producing financial accounts may well be an administrative headache for a
small business and many self employed businesses put off this essential business
and reduce it to an annual event. There are major benefits that small business
can derive from operating the financial system as an important part of the
Big business invests millions in sophisticated accounting software and
financial control systems because financial management is seen as a key to
financial success. Many small business organisations ignores these benefits
relying instead on personal knowledge and in some cases not even that.
Why would a large business that is focused entirely on the bottom line and
growing that bottom line invest in bookkeepers, accounts clerks, accountants,
credit controllers, cost controllers, financial directors and accounting
software? The answer is simple. Detailed strong disciplined financial control is
essential to protecting the financial health of the business and providing the
financial framework to produce higher profit growth year after year.
All business functions are important for business success. Sales and
marketing provide the growth opportunities and production and operating
activities produce the goods to supply that demand but the finance function
delivers the framework and analysis to grow the bottom line.
Regardless of whether a small business maintains a manual system of
bookkeeping to record financial transactions or uses an accounting software
package it is important that regular monthly accounts are prepared. Reviewing
the financial accounts and examining where improvements can be made can grow the
profitability of the business.
By producing monthly accounts that show the sales turnover preferably
analysed by product type or source of sales the effectiveness of the sales
campaign is measured in real money. These types of financial statements can
identify where marketing and sales can be more effective. Putting real numbers
to a sales analysis introduces a more scientific approach to dealing with the
Accounting software produces a gross profit margin the business is earning on
its products. A small business when presented with the profit percentages can
make decisions to increase sales prices where possible to increase the profit or
reduce cost of sales as appropriate. The gross profit margin is vital to the
business finances and analysing the margin to identify areas where it can be
increased can significantly improve profit performance.
A monthly profit and loss account would show the level of expenditure in
running the business. Reviewing the monthly trends produced by the accounting
software will often show some categories of expenses going up and some going
down. Critical review of costs can maintain financial control and improve the
A critical financial feature of business is the level of gross profit margin
in both percentage terms and volume compared with the level of fixed expenses.
By using accounting software to produce a monthly profit and loss account the
business management can immediately see and understand if that gross profit is
sufficient. Action should follow.
That is the benefit of accounting software, the production of actual
financial figures that indicate where and how much action needs to be taken to
improve the net profit earned. That action may indicate a need to improve sales
volume, increase the gross margin through higher sales prices or lower direct
costs or a reduction in overhead and business running costs.
Using financial records from previous accounting periods and comparing with
the present financial figures can raise u8seful questions. Asking these
questions of the financial accounts can throw up sales areas not being fully
exploited, areas where margins can be increased and wasteful expenditure
reduced. Accounting software with the detailed analysis it brings can be used to
better financial control and improve net profits.
About the Author
Terry Cartwright, accountant at DIY Accounting, designs UK Accounting
http://www.diyaccounting.co.uk/ providing accounting and bookkeeping
solutions for small to medium sized business with payroll software at
http://www.diyaccounting.co.uk/payroll.htm for up to 20 employees.
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Article Published/Sorted/Amended on Scopulus 2008-01-14 00:33:12 in Business Articles