One thing deserves special attention the moment you start running your new business. It's the numbers! The best place to start is by hiring a bookkeeper to ensure a timely and accurate recording of your business activities. In this way, you have a true and fair view of your business's position, which helps you make informed strategic decisions. Additionally, timely bookkeeping is also essential for generating detailed reports such as the income statement and the balance sheets. Reviewing these periodic reports can help you assess the impact of your business strategies, such as marketing campaigns. Here is a starter's guide to help you review your periodic income statement:
A Quick Look at the Bottom Line
A quick look at the bottom of an income statement can tell you about your business performance within a certain period. A positive number is good because it shows that your expenses were lesser than the revenue you made. This is also an excellent time to check the math and find any errors that significantly alter math.
Examine the Categories
Look at the account classifications on your income statement and ensure that it is correct and consistent with previous periods. For example, all expenses directly incurred to generate revenue should fall under the cost of sales on the income statement. Getting this right extends to having an accurate value of the gross profit and sales margins before deducting other expenses.
Review the Highest Figures
As you run through the report, take note of the expenses with the highest values, and review them line by line. The highest numbers translate to the items that take up the most resources in your business. For instance, if the payroll has a high value, run through the month's payroll, and ensure that all staff salaries are captured correctly. Looking through the high-value items is the best approach for detecting fraudulent and erroneous bookings.
Pay Attention to Logical Relationships
Understanding the logical relationships on your income statement is necessary for long-term strategic planning and forecasting. For example, employees often get other benefits apart from the salary, such as health insurance and retirement scheme contributions. When the payroll costs double, these related costs should also increase by the same margin. If the margin isn't reasonable, there is a high chance that some of the employee benefits have not been appropriately accounted for in the books. Logical relationships come in handy for tax planning and annual budgeting to ensure that your business has enough resources to run its operations.
Reach out to a bookkeeping professional to learn more.Share