As business manager, you’re in charge of your business’s accounting needs, which involves figuring out financial statements and preparing and using financial reports. Keep these useful accounting tips in mind:
You need a smartly designed P&L (profit and loss) report that serves as a practical tool for managing profit. The external income statement does not serve this purpose well. A good P&L report highlights the key variables that drive your business’s profit performance. The basic P&L template should be adapted to fit each profit center in your business.
*A good P&L report focuses on margin, sales volume, variable expenses, and fixed expenses. Margin equals sales price minus product cost and minus the variable expenses of making the sale. Your business must sell enough volume to earn total margin equal to fixed expenses before breaking into the profit zone. After your business reaches its break-even point, the margin from additional sales goes entirely to profit (before income tax).
*Relatively small changes in profit factors can yield dramatic results. A small slippage in margin per unit can have a devastating impact because unit margin is multiplied by sales volume. On the other hand, a slight boost in sales price or a little more sales volume yields a lot more profit.
*You must clearly understand every cost figure you use. Many costs depend on which accounting method is used, such as the choice between the last-in, first-out (LIFO) and the first-in, first-out (FIFO) methods, or they depend on rather arbitrary allocation methods. Know how your costs are calculated!
Be proactive in choosing the accounting methods for your business and designing accounting reports. All too often business managers adopt the policy that accounting is best left to the accountants. You don’t ever want to be in doubt about your own financial statements and internal P&L reports.
*Establish and enforce strong internal controls. Businesses handle a lot of data and money, which present countless opportunities for errors and fraud. Make sure bulletproof internal controls are in place and working. If your internal controls are weak, someone may steal some of your hard-earned profit.
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Source:http://www.dummies.com/how-to/content/accounting-tips-for-business-managers.html
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