Financial Modelling And Analysis
Posted by bookkeepingmelboune
“What If†Analysis
Before even contemplating approaching a bank for funds to finance your proposed business expansion, it would be a good idea to test out your proposal using simulated financial statements. A competent bookkeeper will be able to use computer spreadsheets such as Microsoft Excel or accounting software such as MYOB – Mind Your Own Business – to perform these simulations to show you how your borrowings will affect the expected returns of your business expansion venture.
A “what if†analysis is a simulation of what the impact of your business decision will be on turnover or revenue, expenses and profits. Say, you wanted to borrow AUD$300,000 at a specified interest rate to purchase the necessary equipment to expand your business. A “what if†analysis would show how much your total expenses will be with the interest payments, what additional revenue your extra business opportunity will bring and how long it will take you to earn a return on your investment in new premises and equipment. This sort of analysis is crucial if your proposed investment will be a heavy financial burden to bear.
“What if†analysis can be done for any form of business decision. You could test out how adding a new line of products to your existing product offering will affect revenue and expenses. You could see how well or badly your business will do if you bought new vehicles and started taking on projects in another town. Your outsourced accounting services can perform “what if†analysis to reveal how your financial statements will be affected if you wanted to use more expensive materials or do a marketing campaign to increase sales. You can find out the relevant ratios, debtor levels, sales margins and projected cash flow connected with your proposal.
The whole idea of a “what if†analysis is to reveal which areas of your business will be affected by your proposals without you having to learn the outcome the hard way. Financial modelling is a very powerful tool that will aid you in making effective decisions concerning the prosperity of your business.
Profitability Analysis
You’re in business to be profitable and not run at a loss. You want to know how much profit your business is making and what are the types of expenses that impact on it. Your accounting services will be able to perform a profitability analysis to identify how your business has earned its profits. This includes sales and margin analysis to identify whether you have priced your products and services at the optimum level to maximise profits. The analysis will reveal the profitability of various categories of your products and services and determine which category is contributing the most in terms of profits to your business.
If you’re running a home refurbishment business doing repairs and painting, you may find that your painting services are actually making a loss even though your overall business is profitable. This sort of analysis will assist you in deciding whether you want to continue providing painting services or merely concentrate on home repairs to increase your profits and reduce your expenditure. Profitability analysis may indicate that your small business is better off focusing on one aspect of your business rather than spreading your resources too thinly and incurring losses in the end.
An experienced and qualified bookkeeper is in a perfect position to analyse the profitability of your business and advise you on the key features that impact your profits. Merely preparing your financial statements and lodging your BAS regularly is insufficient to conduct your business in a competitive environment. You need to understand what the financial statements say about your business entity. You can then use this information to consolidate or divest certain aspects of your business to enhance profitability.
Business Case Analysis
Every business has different factors that impinge upon its viability, liquidity and performance. A plumber’s expenses may not be comparable to that of a building contractor’s, as the focus of each service is entirely different. Bookkeeping services understand the nuances of a wide variety of businesses and can analyse individual services independently of each other. They can bring to bear experience gathered of similar services to analyse your particular business case. They can provide you with cogent, vital information and advice to assist you in building a better business. With an acute awareness of the specific circumstances of your business, accounting services can forestall potentially disastrous financial obligations and encourage better management of your business.
If looking at so many numbers in so many columns makes you somewhat dizzy, your bookkeeper can easily present your data in a more meaningful way. You can see charts or graphs instead of rows of numbers. You can have debtor turnover ratios, working capital ratios and profit margins. You can have lists of your debtors and your creditors as well as an ageing of your debts. In fact, you only have to mention what sort of data you would really like to know from your financial statements and your bookkeeper will be able to show you exactly what you want.
Bookkeeping Melbourne provides comprehensive accounting services that conducts financial modelling and profitability analysis for your small business. Experienced and qualified bookkeeping professionals will reveal how you can better manage your operations for optimal profits. More a business partner than strictly a bookkeeper, bookkeeping Central brings a wealth of professional expertise to bear in analysing the unique circumstances of your business.