4 Red Flags That Your Accountant Can Help You to Spot in Your Business
The financial records of businesses normally contain important signs about the health of that business but many business owners lack the expertise to spot those warning signs before matters get out of hand. This article discusses four warning signs that you should take seriously once your accountant brings them to your attention.
Unfavorable Cash Flow Patterns
Businesses need cash to meet their operating expenses like salaries and supplies (stationery, for example). Your business may be on the brink of collapsing if more cash is going out than is coming in. That is why you should have a serious discussion with your accountant about the cash flow situation of your business so that you take corrective measures (such as cutting operating costs) before it is too late.
If your books of accounts reveal that you have a lot of inventory then take that as a sign that your product has not been well received in the market. That is why all that you are producing is ending up in the warehouse awaiting client orders. Brainstorm how you can move more of that inventory out of your premises so that your business can keep afloat.
Overdue Accounts Receivables
Another red flag that your accountant can draw to your attention is the existence of accounts receivables (money that is owed by clients) that are long overdue. Such overdue accounts receivable portend danger because chances are high that those clients may never pay you. You should consider taking steps like hiring a debt collector so that those overdue payments do not turn into bad debts and hurt the financial health of your business.
When Fixed Costs Outpace Revenue Growth
Your accountant is in a better position to assess the rate at which your revenue is growing so that you can compare that figure with the rate at which your fixed costs are increasing. For instance, you may be taking on more staff to the extent that the cost of keeping them is higher than your revenue can support. Your business can end up hemorrhaging all its resources if this trend is not arrested in time.
As you can see, you need the expertise of an experienced accountant so that he or she can point out small problems before those problems become monsters that can destroy your small business. It is therefore very important that you hire this professional as soon as you start your business so that you can receive professional counsel as you strive to build your enterprise.