The beginning of a new financial year can be the perfect time to assess the financial reporting in your business. When you perform, what is commonly known as a ‘Financial Year Rollover’, i.e. you roll an accounting system into the next year, all of the Profit and Loss accounts return to zero.
This is an opportunity to review how you manage the information in your Profit and Loss to maximise usefulness.
Here are some tips on how you can improve on Profit and Loss reporting.
Income reporting is an area where many businesses miss out on the opportunity to split types of income. If you have more than one type of product, service, division or branch in your business, it can be very useful to know how much income is derived from each one. Most systems have an unlimited number of accounts, so why not use them. It then follows that you would want to split the costs related to those income categories, so that you can also see which ones are most and least profitable. Many business owners get a shock when they start to do this type of analysis and find that areas they thought were profitable can actually be dragging down the rest of the business!
From a business management perspective, it’s important to break up income into source – such as residential or commercial, or individual and corporate. When applying for finance – loans or leases, a common question asked is “How much of the income is from commercial sources versus individual?” (Commercial work often has a flavour of continuity, and is therefore considered more valuable in terms of repeat business expectations). In addition, when selling or valuing a business, the increased likelihood of repeat business from ongoing commercial
contracts is much more valuable than individual business income.. Therefore it’s imperative that your accounting systems are set up to trap this additional data, so that not only is it available as information, but also supported by your accounting systems.
Restructuring the way expenses are grouped is a useful exercise. They can be grouped into sub groups e.g. Employee expenses, General and Administration, Marketing, Motor Vehicle and Travelling expenses. These will make the Profit and Loss report more meaningful and easier to analyse.
A new financial year is a great opportunity to create a budget and enter it into your accounting system. Most good systems have the facility to enter a monthly budget for all accounts in the Profit and Loss (some can even be imported, saving data entry time). Once the budget has been entered, it’s very simple to print out a report each month showing Actual versus Budget. This helps you to see very quickly if something is going astray and you can take immediate remedial action, possibly saving thousand of dollars in losses avoided.
The end of a financial year is also a good time to do any reconciliations, such as current accounting system figures, against what has been lodged in the BAS. Some accounting systems allow you to change things after the BAS is generated. The end of financial year is the perfect time to double check nothing has changed. If it has you can correct it before the end of the financial year. Suggested items to double check are:
- GST collected
- GST paid
- Gross Wages
- PAYG Withholding
This could save you money in accounting fees, as we won’t need to do this for you.
If you want to be in more control of your financial results next year, it may be well worthwhile to invest a small amount of time prior to year-end, getting your accounts into a more meaningful format.