© by Greta P. Hicks, CPA

If you are not finished with your 1997 income tax return, you are probably worrying about getting your records together to have the return prepared. Are you one of those people who only keep books because you need them to prepare your annual tax return going to Uncle Sam? If you are, you are wasting your money. You are more important that the IRS. You should be keeping records for yourself first and Uncle Sam last. Doing the tax return should be only a byproduct of keeping your records. First and foremost, your records are your best control over knowing what your cost of goods sold are and managing the cost of your overhead and for inventory control.

I know, you don’t like bookkeeping. I know, you would rather spend your time selling or manufacturing, something that is directly related to making money. But, your records are directly related to making money and did I say you personally had to do the bookkeeping? Good financial statements help you to know what your costs are, where your money goes, and where you want your money spent. Financial Statements are a historical record of the past decisions you have made and can lead you into making good future decisions. How can you tell where you want to go until you know where you’ve been?

Once a insurance agent asked me, "Greta, I need to cut my costs. Where should I cut?" My response was, "Show me where you are spending your money and I’ll tell you where to cut your costs." He couldn’t tell me where he spent his money because he only had his books prepared once a year so all his data was too old to be of use in making a current decision.

Just as you take your body to the medical doctor for a health checkup and your teeth to the dentists for an exam, you should also look to the health of your company. So, let’s assume you are one of the smart ones and you have a bookkeeper or accountant to compile your records monthly. What do you do with the monthly financial statements they prepare for you? Let me guess? They go into a file drawer or a three ring binder.

When was the last time you looked at them before you put them away? When was the last time you pulled several months out and looked at them for trends of costs and spending? When was the last time you actually used the information that was prepared for you? When was the last time that you looked at the health of your company? Do you know whether your company is healthy or has an internal disease.

I know your next excuse, "I don’t have the time." Like a former dentists client asks, "Greta, can you do something to these that make them easier for me to read? I only have 15 minutes a month I want to spend on this" (the health of his practice). Instead of giving him "regular" financial statements made up of a profit and loss statement and balance sheet, I put the income and expenses for each month on a spread sheet complete with percentages. With a quick 15 minute monthly glance, he could judge the health of his practice and make financial decisions. I’m not saying that 15 minutes a month is enough or okay, but it is better than nothing and great if used wisely.

Here is a quick business health check up ratio or percentage that you can do yourself EVERY month. This basic test will not take you more than 15 to 30 minutes and will be equivalent to the doctor taking your pulse, listening to your heart beat, and taking your blood pressure. Quick, simple, easy, efficient, informative, necessary!

gross profit percentage = Sales less cost of goods sold divided by sales

GP% = S – CGS
                 S

Previous Article | Next Article

List of Articles by Greta P. Hicks, CPA

GRETA P. HICKS, CPA and former IRS manager, concentrates in solutions to IRS problems and advises business and tax professional on IRS policies and procedures. Ms Hicks is owner of TAX SOLUTIONS, Inc., a company providing educational materials and programs on solutions to IRS problems and is a nationally known speaker and writer on solutions to IRS problems. To arrange for consultation contact: Greta's web site: http://www.gretahicks.com

Greta P. Hicks, CPA Main | Authors Row Main | Home