Accounting in Toronto–What Business Owners Need to Know

Allan Madan, CA
 Feb 28, 2010
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Why is accounting so important for your business? After all, as a business owner you only care about your company’s sales figures and cash balance. Accounting really doesn’t matter that much. Wrong.

What does a small business owner need to know? first, accounting does matter, because it provides you with an accurate picture of the financial performance and financial strength of your business. Accounting also provides you with the tools you need to make better business decisions. As an Accounting Firm in Toronto, we’ll show you that accounting really does matter.

Accounting in Toronto & Mississauga – Financial Performance

Accounting measures the financial performance of your business. It’s important to review the financial performance (i.e. profitability) of your business at least quarterly so that you can:

  1. Quantify the business’ profits or losses
  2. Identify areas for improvement in sales
  3. Proactively look for cost savings opportunities
  4. Measure your financial results against your competitors
  5. Track your company’s financial performance against your goals

This sounds great, but why should you care about accounting if your business has a healthy cash balance? Well, you should care because accounting will help you know if you` profits are declining, whether there are signs of a sales slump in the future, and whether your cash will run out shortly.

As an Accounting Firm in Toronto, we can help you identify ways to improve your financial performance.

Accounting in Toronto & Mississauga – Financial Strength

Accounting in Toronto also helps you identify the financial strength of your business:

  • Whether you company has a strong balance sheet, with a lot of cash and retained earnings
  • Inventory turnover (i.e. is your inventory moving slowly or selling quickly)
  • Days sales in accounts receivable (i.e. how long it takes to collect your accounts receivable from customers)
  • Current ratio (i.e. Are there sufficient liquid assets to cover current liabilities due in a year?)

If your business has little cash, a long inventory turnover period, slow collections of accounts receivable, and liabilities in excess of assets, then you’re likely headed for failure.

As an Accounting Firm in Toronto and Mississauga, we can provide you with financial tools that well help you evaluate the financial strength of your business.

Accounting in Toronto & Mississauga – Better Business Decisions

Proper accounting provides business owners with the information that they need to make important management decisions. Let’s look at a few examples:

  • Gross Margin Percentage. The gross margin is the top line profit made on the sale of goods or services. It is calculated as: (Revenues – Cost of Sales) / Revenues x 100. If your company’s gross margin percentage is low, you should consider increasing the selling price of your products / services or decreasing the cost of sales.
  • Operating Costs. As a business owner, you should review the percentage that each operating cost (e.g. rent, telephone, labor, etc.) is of sales, and whether the percentage is increasing or decreasing over time. High operating costs can lead to a cash shortfall and potential business failure. You should discuss this with your Accounting Firm in Toronto.
  • Debt/Equity Ratio. The Debt/Equity ratio measures the extent to which your company is leveraged or is in debt. A high debt/equity ratio means that your business has taken on a lot of debt, which could lead to trouble down the road when the debt comes due. As an Accounting firm in Toronto & Mississauga, we review our clients’ debt/equity ratio on a regular basis.

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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