guest commentary by David Potts
David Potts is a certified public accountant with more than 25 years experience. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.
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New Year’s resolutions, as a rule, fail miserably.
The two most common New Year’s resolutions people make are to start an exercise program and to eat better. When I step on the scales, I have to ask myself what happened to my last year’s resolutions. When I take off my shirt in front of the mirror, I wonder if it’s too late to start another try at a regular workout routine. But I keep trying.
Businesses have their own health issues and, like your own health, choices today affect future health.
Financial statements (e.g., a balance sheet and an income statement, at a minimum) to a business are like vegetables are to people. It is a requirement for excellent health. As a CPA, I work with hundreds of small businesses. The percentage of small businesses that fail to prepare financial statements is high. Add to this percentage the number of business owners who have financial statements available and seldom read them, you realize there is room for great improvement; improvement that is measured in dollars.
A doctor will tell a patient who smokes that the single most important thing they can do to improve their health would be to quit smoking. For a business, preparing and using accurate financial statements to manage their business is one of the basic elements needed for success.
Financial statements can answer a multitude of questions about your business. They can tell you if people are stealing from you; when it is time for you to increase prices; how your business compares to other businesses in your industry; help you obtain a loan quicker if your business finds itself in a cash flow crunch; help you control expenses; let you decide if you need to fire people or hire people; and give your business credibility in the eyes of bankers and vendors.
Financial statements when used help make your business more profitable.
It’s Christmas Eve and the New Year starts next week. Do yourself a favor. Make the following New Year resolutions for 2013.
• Resolution #1
I resolve to ensure that accurate monthly financial statements are prepared for my business.• • •
• Resolution #2
I resolve to use my business’ monthly financial statements with the intention of understanding more fully what forces affect profitability, thereby making more money.
If someone offered to pay you thousands of dollars to lose weight, would it motivate you to lose weight? Preparing financial statements and using them to manage the direction of your business could mean thousands of dollars of additional profit.
How much motivation do you need?