Business Experts Offer Good Advice to Wine the Experience
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To give the Balls a clearer financial picture, Hawaii Business asked ProAccounting to review WTX’s financials and suggest how to improve its accounting system and shave costs. First, Kawasaki advised the Balls to switch from cash accounting to the accrual method, which gives business owners the ability to track revenue and expenses in the proper time period and provides visibility of accounts payables and accounts receivables so they know exactly what their outstanding liabilities are. The accrual method is also beneficial when expenses are paid on credit.
Shannon says he was able to get a more accurate view of the company’s financial standing when ProAccounting restated its financials from January through June 2010 using the accrual method. Kawasaki also used WTX’s gross margin and operating expenses to determine its break-even point.
“Once businesses understand where that point is, then they can figure out how to grow their business further,” Kawasaki says.
O’Connell suggests the Balls update their financial plan, create a forecast, and perform a revenue and expense analysis monthly. This information will help drive future management decisions and expose expense leakage.
“It’s very important for small- and medium-size businesses to make adjustments on the fly, so if something isn’t working, they need to know right away so they can adjust the course of their business,” he adds.
The Balls agree that, if they could start over, they would have invested early on to hire a professional to analyze their financials.
“I think if we had done that, we would’ve been in a very different boat,” John says.
Other accounting tips
• Create a budget and plan. “Businesses should have a plan before the beginning of the year and an updated forecast through the end of the year so they can measure the actuals against the forecast and see exactly where they are, which segments of the business are doing better, need improvement and where they can cut costs,” Kawasaki says.
• Hiring a professional to manage your accounting and produce accurate data, projections and forecasts could mean the difference between success and failure. Rates vary for every client, but, generally speaking, ProAccounting can handle your small business’s accounting needs for about $2,000 a month, which is typically less than what a full-time, in-house accountant would cost, O’Connell says.
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