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Small Business Toolbox:
Accounting Information
Can Help Your Business

It’s not all about taxes, the bank or your investors. Accounting provides really valuable tools to help you manage and grow your business. Managerial accounting gives you information on how your business is doing, helps you set reasonable goals and is a measurement of your progress.

There are a few simple measures that you should know at all times.

• How much cash do you have on hand?
  
• What do you have that will turn into cash quickly? This includes things like your accounts receivable, where your customer has already gotten the products or services you provide. Standard terms are usually within 30 days of billing.
  
• How much money do you owe?
  
• When is it due? Pay particular attention to what is due right now and within the next month.
  
• How are you going to pay it?

Do you know what it costs you when you fill an order? It can be really complicated because not everything costs the same amount every time. You already know about some of the more painful changes, such as pulling up to the gas pump and finding out that filling up will cost you 10 cents more a gallon than it did the previous day.

Many business owners do not have solid numbers on what it costs them to make and deliver a product or to provide services. Is your business busy? It’s pretty easy to see if you’ve got room in the schedule to take on an additional job. What if the company asking you to do it is Wal-Mart? They ’re going to ask you to cut the price you charge them. How low can you go
and still help your business out? When should you tell them to take that contract and find another supplier?

Fixed Costs? Variable Costs? What Difference Does It Make?

Your business has fixed and variable costs. The fixed costs are the ones that you can’t change in the short run. The variable costs are the ones that change. That big Wal-Mart order may not cover both your fixed and variable costs and provide a normal profit for you. Does that mean you should turn it down? Not necessarily!

Here’s how to evaluate whether you should accept that order:

1. Do you have room in your schedule to get the job done without interfering with your other orders?
   
2. If so, what costs could you avoid by not taking the order? These usually include materials, energy costs, wages, special requirements for the job and other costs.
   
3. Will you make enough money from this job to cover all of your variable costs plus enough to cover part of your fixed costs? If so, you may well want to take on a one-time or limited contract that doesn’t interfere with your other business. It’ll actually make a contribution to your business’
   profit.
   
4. If this is an ongoing contract that doesn’t cover both fixed and variable costs plus providing enough profit for your business to prosper, turn it down.