Get insight into your small business finances to make better decisions

Get insight into your small business finances to make better decisions

Growing a successful business relies on minimising your costs and maximising your revenue. When you bring down your costs as much as possible and enhance your sales, you’re naturally creating a much better profit margin. That means more free cash, a bigger financial buffer to weather lean times, and money to invest in scaling your business.

Maximising revenue and minimising costs isn’t easy though. Businesses are complex things, with money coming in from multiple sources and dozens of expenses and bills.

Think about a small, specialist eCommerce organization that sells camping equipment and employs three other people — we’ll call it "Camping Land."

On the income side they have the various products they sell, which are probably sorted into types: tents, sleeping bags, backpacks, walking accessories, etc. Demand for these products will naturally vary based on seasonal trends.

On the billing and expenses side they have two major costs — inventory and staff payroll. On top of that they have all sorts of other expenses — utilities, warehousing, website hosting, professional services, insurance, office rents, marketing, and much more.

Camping Land has two main challenges right now — their warehousing costs are higher than expected, and they find it difficult to predict seasonal cycles and keep enough inventory in stock. How would a business like this get in better control of their finances, and make the right decisions to grow?

Without a good system, it’s very difficult to understand just where your revenue is being created and exactly where you’re spending your money. In many businesses, profit margins are slim, so just small changes in your costs and revenue can have a big impact on your bottom line.

Fortunately, AccountsPortal gives you an easy way to track how you’re using your money, they are:

  • The Chart of Accounts.
  • Products and Services (Price List Items).
  • Categories.

These are all designed to give you much greater insight into your business accounts, and to make financial management much easier.

Chart of Accounts

The Chart of Accounts lists all of the various "Account Types" used in your business. There are several different account types, but some of the main ones are — Bank Accounts, Fixed Assets, Current Assets, Sales Revenue, Operating Expenses, and Current Liabilities.

AccountsPortal lets you easily add new account types in the "Chart of Accounts" setting.

Bank Accounts in Chart of Accounts

Bank accounts are the most high-level way to track where money is in your business. You use them to track money and transactions across different financial accounts. Most businesses have several different account types where they keep their money.

Business Current Account

This would be the main account for your business finances. It’s where all the money for your business eventually filters through to, and is where you will typically make payments from.

Business Savings Account

If you’re putting aside money for expansion or investment, you might have a separate account to keep money away from your main operating expenses.

Credit or Charge Card Account

Many businesses put expenses on a business credit card. A credit or charge card account type can be useful for tracking exactly how much you owe.

Petty Cash Account

These types of accounts can be used to track out of pocket expenses and to ensure you are reimbursed.

PayPal or Other Third-Party Payment Providers

Some payment providers like PayPal receive money into an account on your behalf. You can then transfer that money into your business accounts as needed.

Our friends at Camping Land have a main bank account, a PayPal account, and a Petty Cash account. They don’t tend to use business credit cards, and they don’t yet have a business savings account.

Fixed Assets in Your Chart of Accounts

Fixed assets refer to equipment, property, furniture, vehicles, and other assets that your business owns. Fixed assets contribute to the value of your business and can often be "depreciated" over time for tax purposes.

Camping Land’s fixed assets includes their office, their warehouse, computers, office furniture, office equipment, and one company vehicle.

Current Assets in Your Chart of Accounts

Current assets are assets in your business that change over time. This may include your bank balances, money owed from debtors, advanced payments you have made to a supplier, and stock or inventory.

Other than bank balances and cash on hand, Camping Land’s current assets are mainly the value of outstanding invoices and the considerable amount they hold in stock.

Sales Revenue in Your Chart of Accounts

Sales revenue simply tracks the total amount you have made from sales of products and services.

Operating Expenses in Your Chart of Accounts

Operating expenses lists the various outgoing expenditures your business makes. This includes both direct payments from your business bank accounts and also personal expenses that are claimed back from the business. Operating expenses cover many different areas including payroll, professional fees, software charges, utility costs, travel and accommodation, bank charges, entertainment, and much more.

Camping Land’s main operational expenses are salaries, warehouse rental, and utilities costs.

Current Liabilities in Your Chart of Accounts

Current liabilities show outgoings, expenses, and bills that you are aware of, but which you have not yet paid. This could include accounts payable, corporation tax, dividends, and VAT.

Using the Chart of Accounts to Enhance Financial Decision Making

The Chart of Accounts is a useful tool to help you understand the overall health of your business and to make high-level financial decisions.

  • See how much is in your business at any moment in time by looking at your various bank accounts.
  • Understand how much money you have coming in and going out, by looking at current assets and liabilities.
  • See how much your business is worth overall using assets and liabilities.
  • See where you’re spending money by exploring operational expenses.
  • Reduce your operational costs by reviewing expenses in detail and seeing opportunities for improvement.
  • Understand trends over time by looking at the history of each of your account types.
  • Ensure the overall value of your business is increasing.
  • Plan for future expansion and see opportunities for growth.

Camping Land has decided it needs to understand and take advantage of seasonal trends, and also get its costs under control. To do this, it tracks balances across its various accounts over the last three years to understand how revenue and costs are affected throughout the year. It then starts to look at operational expenses, and sees that warehousing and storage costs are eating up a large chunk of their revenue.

Products and Services — Price List Items

The Chart of Accounts and the various account types it uses is a great way to understand how your business is doing. Sometimes though, you’ll want information at a more granular and detailed level, or you’ll want to save time by only having to enter certain information once. If that’s true for your business, you need to understand Products and Services and Price List Items.

What Price List Items Are

Price List Items are individual products and services that let you quickly add and track regular things you buy and sell. In AccountsPortal, you do this through the "Products and Services" setting.

You enter a description for the specific item, and you can link it to a particular sales or purchase account. You can set the amount typically bought or sold, the value of each unit, and whether VAT is charged on the item. You can also list a particular product as a "stock item."

It’s easiest to understand this with an example, so let’s get back to our friends at Camping Land.

They want to start by tracking which of their items are most popular. They take all of their top-selling items and create price list items for each one. For example, their best-selling tent, the Ultratent 3000 gets a short, descriptive product name, it’s added as a stock item, assigned to the "Sales Income" account at a price of £149.99 and is assigned a VAT rate of 20%.

At the same time, they also add the tent as a "Purchase" item for when they buy from suppliers and give it a purchase price of £70.

This way, whenever they sell it, it can easily be added to an invoice, and whenever they buy it, they can raise a purchase invoice for the amount owed to the supplier.

Camping Land does this for all of their items to make it much easier to see the most popular items across the year so they can manage inventory more carefully and create promotions and sales for less popular items at quiet times.

In addition to their stock items, Camping Land also wants to get in control of its warehousing costs. They do this by creating price list items for common warehousing expenses. This might include postage and packing, logistics, storage, insurance, and utilities, all specifically related to the warehouse. Over time, they will be able to see where their operational costs for warehousing are being incurred.

Using Products and Services and Price List Items to Maximize Revenue and Minimize Costs You can use price list items to reduce time spent administering your business and to get deeper insight into where your money is coming from and going to.

  • Speed up raising invoices by creating price list items for commonly sold products and services.
  • Understand what you’re spending money on by setting up price list items and adding them to purchase invoices and expenses.
  • Generate reports based on price list items to identify cycles over time so you can plan accordingly.
  • Get more granularity in your costs by assigning operational expenses to specific price list items.
  • Manage inventory and stock levels better by seeing when the most items are sold.
  • Create sales, promotions, and marketing based on insight into what is selling and what isn’t.

Categories — A Different Way to Explore Your Finances

Account types lets you understand your finances at a high-level, and price list items mean you can drill into the detail. But, they’re what we might call a "vertical" approach — they let you look at one particular area of your business in a specific way.

What if you want to segment your finances slightly differently? You might want to look more broadly across several different areas — you need to explore your finances "horizontally." For that, you can use something called Categories.

These allow you to "tag" individual transactions and classify them in a way that makes sense to you. Here are some examples of how you can use categories.

  • Assign individual items to specific areas of your business, for example the department responsible for making the sale or incurring the cost.
  • Use "cost centers" to understand your transactions. Cost centers typically gather together transactions based on business functions, so you might have one for marketing, one for operations, one for HR etc.
  • See which of your employees is making the most sales by creating a category for each sales person.
  • Explore the impact of marketing, promotions, or other initiatives on your business by tracking transactions that can be linked back to specific efforts.
  • You can use categories in any way you see fit. They’re one of the most flexible ways to explore transactions and can often surface really helpful information to help you make better financial decisions.

Camping Land decides to make use of categories in several different ways. Firstly, they create a category for each of the channels they use to sell products — direct to consumers through their shop, via their own eCommerce website, through Amazon, and to major camping retailers.

They then set up a number of different ads and marketing initiatives, each with a unique identifier to track marketing return on investment. When orders start coming through, they can assign each item sold to a specific marketing promotion to track effectiveness.

Finally, they get to the bottom of their warehousing issue by categorising all expenses from the warehouse by the suppliers they receive goods from. They find that one supplier is consistently late in deliveries, and they are prepaying for storage space that is not regularly used. By changing suppliers, they are able to bring down their operational costs.

Wrapping it Up

As you can see, there are many ways to use your Chart of Accounts, Price List Items, and Categories to make managing your business much more efficient. AccountsPortal gives you the flexibility and insight you need to dig into your finances and make better decisions.

Further Reading

How to Register as a Sole Trader

How to Leverage Technology and Automation to Support Your Firms Growth

How to Manage VAT in AccountsPortal