On Monday 27th Feb, seven enthusiastic small business owners met to explore the practice of using a set of accounts as a management tool.

Way back in the mists of time, accounts were prepared not to fill in tax returns but as a management tool.  They were designed to tell the business owner what was going well and badly in the business, what the threats and opportunities were.  When the tax man decided to base taxation on the numbers and they started being published (in the case of Ltd Companies), accountants started to put them in a form that did not necessarily give too much away.  This seminar was designed to bring accounts back to their original purpose.

We established a number of principles in reading accounts:
  • Look for trends
  • Eliminate one-off events like the sale of a property
  • Use ratios rather than absolute figures to compare years
  • Look at what is driving the numbers
We also focused on three specific areas to look out for in the health of a business: profit, cash flow and return on investment.  We identified that managing profit could only be done by managing sales and costs, looking at gross profit margin, av sale per £1 employee and a variety of ways of keeping track of sales effectively.  We looked at the significant indicators of healthy cash flow – the current and quick ratios and debtor days.  We explored return on investment as an indicator.

As ever the seminar was rated highly by attendees 8/10 for overall value.

I encourage as many as possible to attend next month’s where we will be exploring the mindset of an entrepreneur through the real life story and insights of an Australian Entrepreneur.  26th March, East Dulwich Tavern, 7pm.