In the wake of an upcoming recession, business owners are bracing themselves for an economic downturn that can significantly impact the viability of their pursuits. While economic conditions play a big role in the continuance of a business, this continuance depends greatly on obtaining information accurately and timely in order to make informed decisions. In this context, the presence of good records can help weather the storm.
A Heart Monitor of the Financial Situation of the Business
First, up-to-date financial records provide an accurate picture of the financial position of the business. In a scenario of a recession, business cost management becomes crucial to ensure profitability. An accurate set of financial statements provided by efficient bookkeeping will help identify high costs and control those costs. Furthermore, identifying the nature of those costs, whether they are fixed or variable expenses, will help investigate cost-cutting solutions. For instance, fixed expenses are costs that will be incurred no matter how much revenue is generated in the period. Examples of fixed costs includes rent, insurance, fixed utilities, etc.
Determining the fixed costs of the business is essential to calculate the break-even point, i.e. the amount of revenues that should be generated in order to cover the fixed costs and to ensure survival. Aside from cost management, correct and efficient financial data can also help advise on staff management and employer best practices to improve profitability. For example, by having an accurate set of accounting books, it would be easier to establish alternative communication methods to minimize employee travel and meeting expenses or to review the hours worked by the staff to achieve maximum efficiency.
A Key to Budgeting and Financial Planning
Second, keeping the books up-to-date enables the business owner to budget and financially plan based on the current economic circumstances. The budgets will not only reflect the impact of the downturn on the business based on the latest information available, but will also enable the owner to determine the areas of improvements and opportunities for growth, or flag spending that’s bleeding money so that it can be addressed before it’s too late. For instance, this exercise could highlight the number of repeat customers that will likely continue to purchase products and services from the business, which will help the business owner determine the minimum amount of expected revenues in the future. Another example is the ability to invest further in marketing, enabling the capture of new leads in a context where such leads may be difficult to obtain.
As an excellent tool for financial planning, the financial information provided by good bookkeeping practices can also be used for improving and managing cash flows. Lastly, this information could highlight any issues in the business such as employing the use of more suitable software, making business acquisitions or updating your regulations, which enable greater risk management, even more crucial in such economic downturn.
A Greater Access to Financing Options and Tax Deductions
Finally, more than managing available cash flow efficiently, accurate financial records can help obtain additional financing and maximize tax deductions. Different programs during the COVID-19 pandemic such as the Canada Emergency Wage Subsidy (the “CEWS”) and the Canada Emergency Rent Subsidy (the “CERS”) required data regarding payroll and rent expenses that are only available through up-to-date records. As such, any relief programs that will be proposed by the governments in the context of an economic downturn will likely require financial information that will be only available if bookkeeping has been a priority.
Furthermore, obtaining loans, especially in a context of a downturn, often requires a complete set of financial statements obtained in a timely manner, putting further emphasis on the importance of continually recording accurate transactions. Good financial records can also help maximize tax deductions, especially in a recession environment, where the need for cash preservation is crucial. Another important yet often missed point is that, in the presence of real-time updated financial books, it is likely that any audits conducted during this period would be less costly, as the information is readily available.
Whether the economy is in the middle of a growth phase or is slipping into a recession, having accurate financial books can act as the number one force enabling a business to withstand any economic climate. Accountero provides efficient and effective bookkeeping services as well as additional services such as CFO and tax advisory that can provide a balanced and highly pragmatic approach to business to ensure growth even in a time of downturn.
Accountero is a tech-powered service provider offering bookkeeping, tax advisory and fractional CFO. Accountero is not a public accounting firm and does not offer services that require a public accounting practice license.