Your Accounts Should Tell You More Than How Much Tax You Owe.
Why understanding your numbers matters
One of the questions I am sometimes asked is:
“What is the point of having an accountant?”
The obvious answer is that an accountant prepares accounts, calculates tax liabilities and helps ensure that deadlines are met.
All of those things are important. Clients need their returns to be correct, their accounts to be accurate and their obligations to HMRC and Companies House to be dealt with properly.
However, I believe an accountant should provide more than a calculation of how much tax you owe.
Your accounts should help you understand your business.
Turnover is not the same as profit
A business owner may see money entering the bank and assume that the business is doing well.
Turnover might be increasing, new customers might be coming in and the business may appear busy. However, none of those things automatically mean that the business is profitable.
Costs may also be rising. The business may have taken on additional finance, experienced delays in receiving customer payments or committed to expenses that are placing pressure on cash flow.
It is possible for a profitable business to struggle for cash. It is also possible for a business with healthy-looking bank balances to have significant tax bills or other liabilities approaching.
That is why understanding the complete financial picture is so important.
Turning figures into useful information
For example:
Is the business becoming more profitable?
Are certain costs increasing faster than turnover?
Are customers taking too long to pay?
Is the business generating enough cash to meet its commitments?
Can it afford to employ someone, invest in new equipment or increase the owner’s drawings?
These are practical questions. They affect the decisions a business owner makes every day.
My role is to take the accounting information and turn it into straightforward answers that the client can use.
Looking beyond the year end
Traditional year-end accounts are largely historical. They look at what has already happened.
That historical information is valuable, but business owners also need to look forward.
Management information, cash-flow forecasts and regular reviews can help identify potential problems before they become urgent.
They can also give a client the confidence to take advantage of an opportunity.
A forecast will never predict the future with complete certainty. What it can do is show the likely impact of a decision and allow the business owner to consider different possibilities.
What happens if sales are lower than expected?
What happens if a customer pays late?
What happens if the cost of equipment increases?
What happens if the business recruits someone three months earlier than planned?
Considering these scenarios allows a decision to be made with a much clearer understanding of the risks.
Confidence through clarity
Many business owners are very good at what they do but do not feel confident when looking at financial reports.
That does not mean they are doing anything wrong. Accounting information is often presented using language that makes it harder to understand than it needs to be.
I believe the accountant’s job is to remove that barrier.
Clients should be able to leave a meeting understanding:
how their business has performed;
what their current financial position is;
what payments and liabilities are approaching;
where potential risks may exist; and
what actions they might consider next.
The aim is not to overwhelm someone with reports and ratios. It is to provide the information they need to make better decisions.
Accounting should help you move forward
Preparing accounts and tax returns will always be an important part of what I do.
But the most rewarding part is helping a client understand what the figures are telling them.
When clients understand their numbers, they have greater control over their businesses. They can make decisions with more confidence, plan for the future and identify problems sooner.
That, to me, is the real point of having an accountant.
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