What Utility Do The Statement Of Cash Flows Hold?

Considering the popularity of the profit and loss, people tend to underestimate the utility that the other parts of financial statements have got to offer, especially the statement of cash flows. Here are a few reasons why the statement of cash flows is important for your business and decisions:

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Cash Is a Better KPI than Most Others

Focusing, merely, on the excess cash that a business generates can serve to be a better Key Performance Indicator than a lot of other items on the profit and loss accounts. Why? Well, it’s because it shows that your business is generating…well…cash! Isn’t that the purpose of doing business in the first place? Having excess cash means that your business won’t have any severe problems relating to liquidity, which is a good meter for all businesses. Having too many assets caught in accounts receivable, for example, can result into a, mere, growth on paper at times, owing to the fact that there’s always a chance that the proceeds won’t be recovered.

They Tell You Where the Money Went

Cash flow statements give you the complete picture of your cash expenses. From this, you can decipher where your money went and whether or not something needs to be addressed. Your company might be giving loads of profits on the profit and loss statement, but what if you don’t have enough cash to make the next payment for your loan? Won’t that put the going concern assumption for your business in jeopardy? Such and other similar issues cannot be identified through a look at the profit and loss statements, merely. Analyzing your cash flows, every once in a while, will help you in streamlining your expenses.

A Focus on Cash

If the statement of profit and loss all that you consider, you’ll be a subject to the false impression that generating profits is the only way to generate excess cash, when it’s not. Creation of excess cash can be done, also, through taking measures such as cutting down your expenditures. Or, in other words, cash creation can be done while spending cash. As an example, consider that a company collects from customers faster and more efficiently than it pays off its suppliers. Hasn’t the company created extra cash using this simple measure? Such insight can only be gained through the statement of cash flows.

Making Big Decisions

Will you be able to finance your assets in the long term? The fact of the matter is that expansion requires not only the generation of assets but also the financing of it. An analysis of the cash flows will give you an idea of whether or not you’ll need to use external sources for the purpose of financing your growth. There are a number of decisions that can be taken in this regard, hence an understanding of the cash flows statement is important to ensure that you make the correct one.

Considering the importance of cash flow statements for your business, you’ll be best served by putting your faith in professionals for expert advice. If you’re looking for advice on how you can make the most out of your cash flows, SKB Accounting has got your back!

The Easily Ignored Sections of Annual Reports—What Secrets Do They Hold?

Making the decision to invest in a company can be tough, considering the intricacies involved. Some people make it on a feeling of gut while others—the smarter ones I’d say—do it on the basis of a company’s annual report. The importance of a company’s annual report cannot be stressed upon enough when it comes to getting a good picture of the company, yet it’s not given its due importance by most investors. Here are some of the sections of annual reports that most investors conveniently decide to skip:

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The Auditor’s Report

 

Imagine making a decision to invest into a company based on its high account receivables (an extremely simplified example) without having the knowledge that the auditor had given a note regarding it indicating that, to the best of their knowledge, a part of these receivable will be unrecoverable. What then? It’s pivotal for investors to, at least, look at the auditor’s report once to ensure that there are no modifications that have been issued. Check also to see if a company is in the habit of changing its external auditors regularly. It might be more relevant for you than you may think!

The Director’s Report

The Director’s Report lists among the most commonly ignored sections of the annual report, by an average investor, owing to the fact that some investors don’t feel that words should be made a part of a report that describes a company’s financial position. To put it in a nutshell: the Director’s Report will tell you about any expansion plans that the company might have. This, when combined with the economic outlook, contribute to be an effective meter in the determination of the future of the company.

Corporate Social Responsibility

Companies tend to make profits…big profits. Wouldn’t you want to know how those profits are impacting the society? Companies have a responsibility to carry out their CSR initiatives owing to the fact that they generate their profits off of the society. If a company hasn’t been conducting its CSR activities like it means (painting a few walls in the name of it) then you truly need to consider whether such a company—that doesn’t seem to care about the society—deserves to get a hold of your hard earned money.

The Business Model

Considering the fact that a company’s business model, pretty much, dictates the performance and direction of the company, it’s a surprise that more investors don’t pay much heed to it. Looking at a company’s business model not only tells you how it has gotten to where it is (a priceless piece of knowledge, no doubt!) but it also informs you of what the company intends to do in the future. Considering that the investments you make today will reap benefits in the future, isn’t it important to have an idea of what the future will be like for the company?

According to the greatest investor of all time, Warren Buffet, “Read 500 pages every day. That’s how knowledge works. It builds up like compound interest”. Reading, truly, is the habit of the truly successful people. However, if you’d like an expert’s advice on a company’s annual report, our professional experts at SKB Accounting will be more than happy to be of assistance.

Reasons Why You Should Use Accounting Software

Accounting software is, perhaps, the number one requirement of all businesses, big or small. However, it is mind-boggling to see that many businesses, especially SMEs avoid  leverage accounting systems—such as QuickBooks, Xero, App Folio, Sage and many others to streamline and automate their day-to-day accounting needs. .

We believe automating business processes is crucial for growing a business. It reduces the hassle and allows the owners to focus their energy on growing their business. This is why our team is committed to educating businesses and working with them to find the right accounting software for their needs.

If you’re skeptical and wondering why you need to invest in a good accounting software, then here are the top reasons:

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Consistency

The biggest reason why a business—especially a small one—should be using an accounting software is to streamline their bookkeeping. When it comes to managing your accounts, there is no room for mistakes (classifying accounts receivable as cash). It has to be done by the book. A small mistake can lead to wasting tons of hours going through all your records.

Additionally, accounting software is faster. With the right software in place, you can be sure that you won’t face consistency issues in your books anymore!

Simplified Reporting

Gone are the days when you—or your staff—needed to spend a lot of time generating accounting reports. From extracting data to analyzing numbers, to proper formatting to generation of graphs and statistics—all of these can be performed quickly with an accounting software.

Additionally, accounting reports can be generated in a matter seconds, with just a few clicks—if accounting software has been employed. This means you gain deeper insights into your business financials without worrying about the time it will take to compile a report on Excel or the accuracy of the reported data.

Conservation of Time and Money

For a business owner time and money are everything, right? We often hear owners worrying that “I didn’t get the time today to visit this vendor! I didn’t know we were short on cash to order the supplies!” among other things. However, accounting software has got a thing or two to say about that!

Accounting software can do wonders when it comes to serving a business owner’s time and money. How? A business owner will neither need to spend extensive hours in managing his books nor will they need to pay someone else to do it for them. There can be no better deal!

Easier Audits

One of the biggest reasons for the problems in audits is human error. While erring is a part of being human, the nuisance that human errors cause in audits make auditors want to pull their hair out. Why wouldn’t it? Human errors—especially the minor ones—are tough to detect and even tougher to take care of owing to their impacts on multiple financial statements. With the use of accounting software, however, you reduce the chances of such errors. And even if an error is made in data entry, it can easily be corrected in one place without any concern for additional adjustments.

Concluding Remarks

These reasons are, merely, the tip of the iceberg when it comes to the advantages that accounting software has got to offer. There is no reason for businessmen, in this day and age, to not automate their accounting with accounting systems.

Are you considering getting accounting software for your SME but don’t know which one will cater to your needs? Don’t fret, for SKB Accounting has got your back. When it comes to accounting software, we will provide you all of the advice that you will ever need!