In fact, the accountants found that most dealers could make a profit when the displays were sold years later, provided they were marketed properly. As a result, their professional recommendation was that displays should be posted as Current Assets not to be depreciated. Listing displays as Current Assets – as opposed to Fixed Asset – makes them more valuable in the eyes of bankers because they can be converted into cash more rapidly.
The Need for Accrual Accounting.
Most accountants encourage small businesspeople to recognize revenue when they receive a check. Known as cash accounting, this methodology is recommended because it’s easier for bookkeepers to do with the accounting software packages today. However, cash accounting in the kitchen and bath industry produces inflated income, gross margin and net profit figures – all of which can lead to ill-conceived, even disastrous, business decisions.
Accrual accounting, on the other hand, recognizes revenue only when the job is substantially completed. Information has to be inputted into these software packages in special ways to be accurate, which the average bookkeeper – even an experienced one – rarely knows. Accrual accounting is the only way that a dealer in this industry will have an accurate financial picture of how well his or her company is performing.
The Six Values of Knowing Your Financials.
Every dealer-owner in this industry must be adept in reading, interpreting, and using their financial statements to make the wisest of business decisions. They should seek as much education as possible in this arena, for there are six important values that emanate from this financial know-how.
First, you will protect yourself from possible embezzlement. Yes, I’m sure you trust your bookkeeper. But so did a California dealer who lost $1,000,000+ to such a trusted individual over a span of 13 years. Second, you can better measure your financial performance against others in a group, identifying weaknesses where your business can be shored up.
Third, you can ask better questions of professionals so you can secure better advice. Fourth, you can set more intelligent and realistic goals for your company.
Fifth, you can furnish more confident leadership, attracting and retaining quality personnel as well. And sixth, knowing the financials as well as you know the designing of kitchens can definitely make your firm a lot more profit!