Accouting Software Is A Tool To Make Business More Profitable
Big business uses the financial function and accounting software to analyse and improve financial performance through financial control and the exploitation of opportunities. Small business has a serious problem of viewing accounting software as an administrative headache for annual tax purposes missing the valuable opportunities the financial system can provide.
Accounting software is often too complex for small business to bother with it and the business suffers as a result. Simple Accounting software to help with the bookkeeping can prove a useful tool to make the business more profitable.
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. Such financial information is required to determine where future sales and marketing efforts are required to improve or discontinue a failing program or capitalise on a successful program. Putting real numbers to a sales analysis introduces a more scientific approach to dealing with the financial facts.
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 profit and loss account shows the operating costs of the business each month. 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 financial performance.
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.
A major advantage of keeping actual current accounting records indicates the management action required to increase the profitabliity. The result can assist identifying items to imporve such as sales turnover and gross profit margins by increasing selling prices, lowering direct costs or reducing other fixed business operating costs.
Using financial records from previous accounting periods and comparing with the present financial figures can raise u8seful questions. Such questions may identify sales opportunities that are not being fully exploited, areas where gross profit margins can be improved and cost control over excess expenditure. Accounting software with the detailed analsyis it brings can be used to better financial control and improve net profits.
Source: Free Articles from ArticlesFactory.com
ABOUT THE AUTHOR
Terry Cartwright, CEO DIY Accounting, a qualified accountant designs UK Small Business Accounting Software on excel spreadsheets and Payroll Software for small to medium sized business providing a complete accounting solution and also supplies Company Formation packages for new limited liability companies