Get your financial figures reviewed by an accountant
- An accountant can review financial figures.
- Accountants can help a business grow
- Getting a financial review for your business makes sense
In the complex world of business, financial numbers tell a story. Financial figures are not just columns of data; they are windows into the health and potential of any business. Beyond tracking profits and losses, skilled accountants possess the ability to decipher these numbers, identify patterns, and uncover opportunities for growth or tax savings. We will try and explain the critical role accountants play in reviewing financial figures to give you simple to understand insights that can help drive changes in your business to grow or increase profits. The accounting team at Fitzpatrick and Robinson do this for hundreds of businesses in Sydney every year.
The role of an accountant beyond bookkeeping
Accounting has evolved from being a mere tool for tracking transactions to a strategic partner in business growth. Modern accountants go beyond crunching numbers; they interpret financial data to inform key decisions that can be made by a business owner. An accountant can wear multiple hats – financial analysts, advisors, strategists, and more. Their expertise extends to interpreting financial statements, analysing trends, and formulating actionable recommendations, in some respects a pseudo business coach.
The roles of a bookkeeper and an accountant in a business are often intertwined, yet they serve different functions, especially when it comes to reviewing financial figures. Both contribute significantly to maintaining accurate financial records, but their skillsets, qualifications, and the depth of their analyses differ. Let’s delve into the key differences and determine which role brings more expertise to the table when it comes to reviewing financial figures.
A bookkeeper is primarily responsible for recording day-to-day financial transactions of a business. They maintain ledgers, record invoices, payments, receipts, and reconcile bank statements. Their role is pivotal in ensuring that financial records are accurate, organised, and up-to-date. Bookkeepers require a solid understanding of accounting principles, especially in terms of double-entry bookkeeping. They are skilled in using accounting software to enter and categorise transactions correctly. Their focus is on data entry, organisation, and ensuring transactions are properly classified.
An accountant can play a broader role that extends beyond data entry. They analyse financial data to provide insights, strategies, and recommendations that guide a business’s financial decisions. Accountants interpret financial statements, perform ratio analysis, and provide valuable financial advice. Accountants typically hold formal qualifications such as a degree in accounting, finance, or a related field. They possess a deep understanding of accounting principles, tax regulations, and financial analysis techniques.
Many accountants pursue professional certifications like Certified Practicing Accountant (CPA) or Chartered Accountant (CA) to demonstrate their expertise. Accountants excel in reviewing financial figures from a strategic perspective. They go beyond data entry and organise financial data into meaningful reports. They perform in-depth analyses to identify trends, key performance indicators (KPIs), areas for improvement, and growth opportunities. Accountants also advise on tax optimisation strategies by leveraging their knowledge of complex tax regulations.
So it means that both bookkeepers and accountants are essential for maintaining a business’s financial health, accountants hold a distinct edge when it comes to reviewing financial figures. Their advanced qualifications, analytical skills, and deep understanding of financial concepts enable them to provide comprehensive insights and recommendations that drive business growth, improve operational efficiency, and optimise tax strategies. Bookkeepers are crucial for accurate data entry and organisation, forming the foundation upon which accountants build their analyses. Therefore, in terms of reviewing financial figures for a business, accountants are more skilled and qualified due to their ability to offer strategic, analytical, and forward-looking insights that propel businesses toward success.
The art of financial analysis
Financial statements are treasure troves of information that an accountant can dissect using the balance sheets, income statements, and cash flow statements to identify financial strengths and weaknesses. Typically an accountant will establish KPIs unique to each business to then use those metrics to provide insights into operational efficiency, liquidity, profitability, and growth potential.
Carrying out a ratio analysis allows an accountant to compare numbers across periods and against industry benchmarks. What will typically then happen is that trends are spotted through these analyses which helps to form ideas for opportunities and areas for improvement.
Ratio analysis is a powerful tool used by accountants and financial analysts to assess a business’s financial performance, health, and stability. It involves calculating and interpreting various ratios that provide insights into different aspects of the business’s operations, profitability, liquidity, solvency, and efficiency. These ratios allow stakeholders, including management, investors, creditors, and analysts, to make informed decisions about the business’s financial situation. Let’s delve into some common types of ratios that accountants use in ratio analysis:
1. Liquidity Ratios:
Liquidity ratios measure a company’s ability to meet its short-term obligations. They assess whether a business has enough liquid assets to cover its immediate liabilities.
- Current Ratio: Current Assets / Current Liabilities
- Quick Ratio (Acid-Test Ratio): (Current Assets – Inventory) / Current Liabilities
2. Solvency Ratios:
Solvency ratios gauge a company’s long-term financial viability and its ability to meet long-term obligations.
- Debt-to-Equity Ratio: Total Debt / Total Equity
- Debt Ratio: Total Debt / Total Assets
3. Profitability Ratios:
Profitability ratios evaluate a company’s ability to generate profits relative to its revenue, assets, equity, or other relevant metrics.
- Gross Profit Margin: (Gross Profit / Revenue) * 100
- Net Profit Margin: (Net Income / Revenue) * 100
- Return on Assets (ROA): (Net Income / Total Assets) * 100
- Return on Equity (ROE): (Net Income / Total Equity) * 100
4. Efficiency Ratios:
Efficiency ratios assess how effectively a company utilises its assets to generate sales and profits.
- Inventory Turnover: Cost of Goods Sold / Average Inventory
- Accounts Receivable Turnover: Revenue / Average Accounts Receivable
- Accounts Payable Turnover: Purchases / Average Accounts Payable
5. Market Ratios:
Market ratios reflect a company’s valuation in the stock market and its attractiveness to investors.
- Price-to-Earnings (P/E) Ratio: Market Price per Share / Earnings per Share (EPS)
- Price-to-Book (P/B) Ratio: Market Price per Share / Book Value per Share
6. Coverage Ratios:
Coverage ratios measure a company’s ability to cover interest and debt-related expenses.
- Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense
- Debt Service Coverage Ratio: Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) / Total Debt Service
These ratios provide a comprehensive view of a business’s financial health and performance. When accountants conduct ratio analysis, they not only calculate these ratios but also interpret their implications. By comparing a company’s ratios to industry benchmarks, historical data, and competitors’ ratios, accountants can identify strengths, weaknesses, trends, and areas for improvement. This information is invaluable for making strategic decisions, assessing risk, and formulating action plans to enhance the business’s financial position.
Driving business growth through financial insights
Accountants identify under utilised assets, untapped markets, and areas where investment can yield high returns. Their analysis sheds light on expansion prospects and diversification strategies. This is such a broad area and will vary depending on the type of business, industry or niche, but it goes so far as using financial analysis to even pinpoint bottlenecks and inefficiencies in operations. By reallocating resources and streamlining processes, businesses can improve productivity and reduce costs.
It is this type of well informed decision making that can be the cornerstone of growth. Accountants provide accurate, timely insights that guide decisions on product or service development, pricing strategies or even entering different markets. If this information us used together with a marketing consultant you can formulate new business growth strategies then execute them to ensure visibility to potential customers.
Many business owners get so busy running their day to day operations that they don’t have the time, or experience, to take a step back and look at this aspect of their operation. That is why engaging an accountant can make all the difference. They have the time as well as the expertise to identify opportunities.
Tax optimisation using an accountant
Tax laws in Australia are intricate and ever-changing. Accountants are well-versed in tax regulations and leverage their knowledge to ensure businesses capitalise on available deductions, credits, and exemptions. Accountants formulate tax strategies that align with a business’s financial goals. By analysing income, expenses, and investments, they can help to minimise tax liabilities legally and ethically. Minimising any taxes being paid can help improve cashflow, profitability and create funds to use for business expansion.
Accountants help businesses navigate the fine line between aggressive tax strategies and potential audits. Their expertise ensures compliance with tax laws while minimising risk. Even if an audit or a risk review was requested by the ATO you will have the support needed to navigate any questions easily.
The collaborative process with a business and accountant
The most successful accountant and business owner relationships are when there is close collaboration & understanding. The better the business owner can provide accurate operational insights, the better the accountant can deliver financial advice, it is that simple. A good synergy creates a holistic approach to growth and tax planning which makes the financial analysis an ongoing process because the accountant can review progress regularly, making adjustments as the business landscape evolves. Accountants empower business owners by sharing financial knowledge so that this education helps business owners make informed decisions and understand the rationale behind recommendations.
Best of all, an accountant can be a source of accountability to ensure any goals or plans are actioned to deliver the outcomes intended and are able to deliver on various tasks including;
1. Financial Analysis and Insights: Accountants analyse financial data to identify trends, strengths, and weaknesses. They provide insights into key performance indicators (KPIs) that guide strategic decisions for growth.
2. Budgeting and Forecasting: Accountants create realistic budgets and financial forecasts that help businesses plan for expansion, allocate resources effectively, and avoid financial pitfalls.
3. Strategic Tax Planning: Accountants optimise tax strategies, minimising tax liabilities while ensuring compliance with tax regulations. This leads to increased cash flow that can be reinvested in the business.
4. Cost Management: Accountants review expenses and identify areas for cost reduction. This efficiency improvement frees up funds for growth initiatives.
5. Capital Allocation Decisions: Accountants help decide where to invest capital for maximum return on investment (ROI). They evaluate potential projects, considering their financial viability and potential risks.
6. Financing Strategies: Accountants assist in choosing the right financing options for expansion, such as loans, equity financing, or grants, based on the business’s financial position and growth goals.
7. Financial Reporting: Accurate financial reports provide stakeholders with a clear view of the business’s performance. Accountants ensure these reports are prepared in a way that meets the needs of investors, lenders, and management.
8. Business Valuation: When seeking investors or considering mergers/acquisitions, accountants can help determine the business’s value accurately, ensuring fair deals and maximising returns.
9. Internal Controls and Risk Management: Accountants establish strong internal controls that safeguard assets and prevent fraud. This instills confidence in investors and stakeholders, supporting growth efforts.
10. Growth Strategies and Scenario Analysis: Accountants collaborate with management to assess different growth strategies, analysing potential outcomes and associated financial risks. This allows businesses to make informed decisions.
In today’s modern business landscape, the role of an accountant has transcended traditional bookkeeping which was focussed on processing paperwork. Armed with financial acumen and analytical skills, accountants can be instrumental in driving your business growth and optimising tax strategies if there is close collaboration. By delving deep into financial figures, they uncover opportunities, strategise for growth, and navigate the complex tax landscape. Business owners who recognise the immense value of their accountants as partners in growth and financial success position themselves for sustained prosperity in their local market.