As a small business owner, do you consider your quarterly BAS to be a necessary evil? Or do you see it as a chance to pause and check the financial temperature of your business?
Each quarter almost every small business throughout Australia has to calculate and lodge a Business Activity Statement (or BAS).
Many small business people object to being the government’s tax collector every quarter and get the BAS off their desk as quickly as possible. Others, while not enjoying the tax collection aspect, also recognise each BAS as an important opportunity to assess the some of the key numbers in their business.
To produce and lodge each BAS requires an accurate set of quarterly financial accounts – often prepared, or at least checked, by a professional bookkeeper or accountant. It is these quarterly accounts that can reveal many things about the current performance of the business.
For example, how is the turnover, gross margins, expenses and net profit tracking? How do they compare to the same quarter last year?
If there are differences, the most important question is why?
Why is the turnover down? Have we lost major customers? Are their new competitors undercutting prices?
Are our gross margins (sales less cost of goods sold) holding up? If margins are being squeezed, why? Is our stock more expensive? Have delivery or storage costs increased?
What about other business expenses? How are they tracking overall compared to last year? Are there any line items that have blown out? If so, why? Were they allowed for in the budget?
Or are we doing better than this time last year? Is turnover and profit up? If so, then why? Is any particular area of the business responsible for the good outcomes? Are there any key staff members or marketing campaigns or new products? Is the improvement sustainable? And are the improved figures in one area masking poor performance in other areas of the business?
And what about your balance sheet? Have you got enough money in the bank? What levels of stock are you carrying? Have your liabilities increased?
The good news for business owners is that modern accounting packages makes this quarterly review of your business numbers an easy thing to organise.
All good accounting software packages, like Xero, provide detailed and simple access to current and comparative reports on all areas or your business.
Being the business bookkeeper is often not the most efficient or effective use of a business owner’s time. Better to focus on sales and business development and pay a professional to prepare the books.
But it is important for each business owner to know how to access, or request, the key reports and numbers in their business accounting software. Taking time to study these reports can provide some powerful data to help you with both short and long term decision-making.
This is where a good relationship and communication between a business owner and a professional accountant is important.
If you are not large enough to have your own internal qualified accountant, then a good and proactive relationship with your external accountant can be a key to helping analyse the numbers.
A brief meeting, phone call or email exchange with your accountant to discuss your quarterly numbers may be all that you need to check your business is on the right track.
If a negative trend in your numbers is detected better it be investigated and corrected early, rather than running the risk of letting it continue to impact across all four quarters of the financial year.