By October, you have three months of the new financial year behind you.
That makes it a useful time to step back from the day to day and review what your financial information is showing about the business itself.
Three months of financial information can begin to reveal changes in revenue, expenses, margins, cash flow and customer payments. It can also show whether the assumptions you made at the beginning of the financial year are playing out as expected.
The value comes from understanding what has changed, why it has changed and whether anything needs attention.
Your First Class Accounts bookkeeper can help you review your financial information, identify changes worth investigating and make sure you have accurate figures to support your business decisions.
Start with revenue
Revenue is an obvious place to begin, but the total figure only tells part of the story.
Compare revenue for the first quarter with your expectations for the year. It can also be useful to compare it with the same period last year, particularly if your business experiences seasonal changes.
Look at where the revenue is coming from as well.
You may find that one service, product, customer type or part of the business is contributing more than expected, while another has slowed. Understanding that mix can help you decide where to focus your attention over the coming months.
Your First Class Accounts bookkeeper can prepare financial reports that make these comparisons easier to see and help you investigate unusual movements in your figures.
Look at what is happening to your margins
An increase in sales does not necessarily mean the business is becoming more profitable.
If the cost of delivering your products or services has increased at the same time, your margins may be moving in the opposite direction.
Supplier prices, wages, freight, materials, merchant fees and other direct costs can all affect the amount left from each sale.
Reviewing gross profit alongside revenue can help identify whether rising costs are beginning to affect the financial performance of the business.
If your margins have changed, talk to your First Class Accounts bookkeeper. They can help you check the underlying figures and identify where costs have moved so you can make decisions using current financial information.
Review your operating expenses
Business expenses can increase gradually, which makes them easy to overlook when you are focused on running the business.
The end of the first quarter is a good point to compare current expenses with your budget, previous periods and your expectations at the start of the year.
Look for expenses that have increased significantly, recurring costs that have changed and subscriptions or services that may no longer reflect how the business operates.
The aim is to understand where the money is going and whether those costs still make sense for the business.Accurate bookkeeping makes this review far more useful. Your First Class Accounts bookkeeper can help ensure expenses are recorded correctly and provide reporting that gives you a more complete view of how your operating costs are changing.
Check your payroll costs
Payroll is often one of the larger costs in a business, so changes can have a noticeable effect on financial performance.
Rather than looking only at the total payroll figure, consider payroll costs in relation to revenue and workload.
Have wage costs increased faster than revenue? Have overtime, allowances or additional hours changed? Has the structure of the team changed since the beginning of the year?
These figures can provide useful information about staffing costs and help you understand how payroll is affecting the broader financial position of the business.
Your First Class Accounts bookkeeper can help you maintain accurate payroll records and provide the reporting you need to review payroll costs alongside other business expenses.
Take a closer look at debtors
Strong sales figures can look encouraging on a profit and loss report, but cash flow can still become difficult if customers are taking too long to pay.
Review your accounts receivable and look at how much money is currently outstanding.
Consider whether invoices are being paid within your agreed payment terms, whether overdue balances are increasing and whether particular customers are regularly paying late.
A growing debtor balance can affect your ability to pay suppliers, wages and other business expenses even when sales remain healthy.
Your First Class Accounts bookkeeper can help you keep debtor records accurate, monitor outstanding invoices and put consistent processes in place for managing receivables.
Review cash flow, not just profit
Profit and cash in the bank are two different measures.
A business can record a profit while still experiencing pressure on cash flow due to customer payment delays, large supplier payments, loan repayments, tax obligations or changes in stock levels.
Looking at the first three months of cash movements can help you understand when money is coming into the business, when it is leaving and whether there are periods where available cash becomes tight.
This can also help with planning for upcoming obligations later in the financial year.If you are unsure what your current cash flow position is showing, your First Class Accounts bookkeeper can help you review the numbers and provide reporting that gives you a more useful picture of your financial position.
Compare your results with the plan
If you prepared a budget or forecast for the financial year, October is a useful time to compare it with what has actually happened.
You do not need every figure to match your original expectations. Conditions change, customers behave differently and business costs move.
The important part is understanding the difference between what you expected and what has occurred.
If revenue is lower than forecast, investigate where the difference has come from. If costs are higher, identify which areas have changed. If the business is performing ahead of expectations, understand what is driving that result as well.
Your First Class Accounts bookkeeper can help you compare actual results with your budget and provide the financial information you need for a useful discussion about the months ahead.
Use your first quarter numbers while they are still current
Financial reports are most useful when they help you make decisions while there is still time to act.
Waiting until the end of the financial year can mean you are reviewing issues months after they first appeared.
A first quarter review gives you an opportunity to see how the year has started, identify changes early and decide whether your plans need adjusting.
It also gives you a stronger financial base for discussions with your accountant, lender or other business advisers when required.
Your local First Class Accounts bookkeeper can help you keep your financial records accurate and up to date, prepare useful reports and identify the numbers that deserve a closer look.
If you have not reviewed your first quarter results yet, speak with your First Class Accounts bookkeeper about what your numbers are showing and what information will be most useful for the next stage of the financial year.
