Does the mere mention of ‘accounts’ fill you with dread? Are you terrified of numbers and prefer to leave ‘all that stuff’ to your accountant? Well, I’m here to say that it’s crucial – especially in these tough times – that you understand your accounts if you run a mobile DJ business. You need to have a good idea of which figures to keep an eye on so you can plan your next steps effectively.
Most small business owners rarely put aside the necessary time to keep a handle on their finances. Many only want to sign a set of accounts so that they can be submitted on time. They don’t even look at the figures! But they could be missing out on an essential tool for guiding their business forward to future success.
If you haven’t got an understanding of the numbers in your mobile DJ business, how can you possibly make the best decisions for ensuring its future success? Are there any financial measures to take advantage of currently? Would a bounce back loan help your business? How would it impact on your cash flow, accounts and ability to weather the current storm? I’m not saying that you need to have an in-depth knowledge of accountancy, but knowing the basics is exceptionally important. In fact, I’m such a strong believer of this that I made it the focus of my latest book, Your Business Your Numbers.
Why It’s Important For You To Understand Your Accounts
There are various reasons why I believe it’s important for small business owners to have a good grasp of their accounts. These include:
Profit And Loss Account
It’s important to keep track of your business’s Profit and Loss Account and review it regularly to make sure you are hitting your financial targets and have your expenses under control. These are the main parts of a Profit and Loss Account:
The total value of the services you have sold during the period (net of VAT); basically all of the money you have been paid for gigs.
Cost of Sales
The costs that are directly related to the sales you have made. For example hiring of equipment for a specific event.
Turnover minus Cost of Sales. This tells you how much profit you are making directly from your sales.
All of the other costs associated with running your business. For example music, insurance, staff salaries (if you have any), vehicle costs, advertising etc.
Gross Profit minus Administrative expenses. This is the actual amount of profit you have made within the period covered by the Profit and Loss Account. For all of the above figures, it’s important to set realistic targets at the beginning of the financial year. Then, at the end of it, compare the actual figures to the target set and analyse why the figures are different if there are major discrepancies. This detective work will help you to identify areas of your business that need a bit of work so that you can make necessary changes as soon as possible.
In a nutshell, a balance sheet is a snapshot of your accounts at any given point in time… and it must balance! It is broken down into three parts:
Business Assets – What The Company Owns: Fixed assets – equipment, vehicles etc. Current assets – bank balances, cash and trade debtors (money owed to you by customers)
Business Liabilities – What The Company Owes: Current liabilities – creditors (suppliers you owe money), bank overdraft, amounts owed to HMRC Long-term liabilities – bank loan
Shareholder’s Funds / Owner’s Equity:
In short, does your business own more than it owes? If the answer is yes, then the balance sheet total will be a positive figure. This will show that a business is healthy. If your business owes more than it owns, the balance sheet total will be negative – and that’s not good news, because it means your business doesn’t have enough money available to pay its debts. Take time to understand these two sets of numbers and you will see the benefit – trust me!
Do you want to stay in control of your finances? I’ll be at the Pro Mobile Conference in March 2021 to present my keynote talk ‘Maximising Your Tax Efficiency’ as well as small group sessions answering delegate’s financial questions. In the meantime, why not join my online group? I also offer 1-2-1 mentoring and accountancy services. If you would like more information, get in touch via my website: www.annagoodwinaccountancy.co.uk