Are you an accountant or proprietor? Do you have the best accounts system in your company? It is your task to ensure that your company makes a profit. You have to do everything possible to ensure that your organization minimizes the chances of loss.
You are not alone. For example, for Singapore Airlines, the operating profit in the fiscal year 2019/2020 amounted to about SGD 59.1 billion. It shows a decrease compared to the previous fiscal year of 2018/2019, where it made SGD 1,067.1 billion. The company made a loss of about SGD 1,008 billion, which reflects the impact of Covid-19.
That is true there is a probability of making profit and loss in business. It is not a bed of roses for your company to make profits. And it is also a hot potato for your company to handle a loss situation.
But how can you apply an accounts system in your company to maximize profit? How can you streamline the accounts system to minimize the chances of loss in your company?
Company performance: Profit Vs. Loss
Every company owner is interested in making the highest possible return on every dollar they invest. It is your role to evaluate every business opportunity before your company engages in it.
In case of financial loss in your company, it is an-elephant-in- the-room. But there is a need to pour water on troubled waters as you need to get everything moving in your company despite suffering a financial loss.
Registering losses can affect the performance of your organization. At the end of every financial year, you have to assess the performance of your company. For example, you have to find out how much your company realized in terms of profit and loss. You also use the findings to determine the necessary measures to apply in maintaining profitability or managing losses.
When you experience continuous losses, your financial status as a company becomes shaky. And it causes pressure in meeting financial obligations in your company. It makes it difficult for your company to operate and carry out your activities as planned.
It is as well very motivating when your company makes a profit in every financial year. But you have to ensure that you are earning the highest revenue from each dollar you invest. A company can be making a profit every financial year, yet it can profit more than that.
5 Ways accounts system helps in maximizing profit and minimizing chances of loss in a company
Though your company is liable to making losses, accounting software helps to minimize the chances of loss in your organization. Therefore, the following are the five ways the accounts system maximizes profit in your company.
1. Helps to analyze costs more accurately by department
Accounting software like tally helps you to record the day-to-day business data of your company. It becomes easy for you to analyze the costs of each department accurately daily. You can evaluate and know the financial contribution of each department in your company.
Additionally, the recording of each activity in your business helps you to know the most profitable, average, and low activities in your company. Therefore, enables you to make accurate cost analysis in your organization.
2. Determines Overhead by activities that generate costs
Besides, you need the accounts system in determining expenses associated with the running of your business that you cannot link to creating or producing a product or service. They are the expenses you incur to stay in business, regardless of your success level.
In other words, overhead costs are a cost summary on your company’s income statement. But except for those costs that are directly related to your manufacturing, selling a product, or providing a service.
3. It enables you in altering the nature of depreciation
In addition, the accounting system assists you in managing the tax benefit of depreciation. Companies mostly use depreciation for equipment and machines. You can also use it on your real estate, vehicles, and other assets of significant value.
Through activity-based costing, you may be able to adjust your depreciation method. This way, you maximize this benefit and decrease your overall tax liability.
4. Assists in identifying better opportunities for savings
Furthermore, when your company’s expenses allocate across the company as a whole, it is difficult to identify where your cost inefficiencies are. You can only identify ways to reduce spending on energy, water, labor, and more when you understand where their areas of waste are.
Through activity-based costing, your company will be able to see what percentage of each line item expense is being spent. You can take a look at this per department or per activity basis. This means that you can more easily determine where you can reduce overhead. You can also find how much you may be able to reasonably save by doing so.
5. Assists in identifying better opportunities for savings
And lastly, productivity and overhead link in many ways. For example, accounting software helps you determine whether your profits per man-hour or per machine-hour are not too low. Perhaps you discover that you spend too much labor expense on shipping and not enough on production.
Productivity plays a direct role in your bottom line. Therefore, accounting software is critical to your ability to improve productivity.
In summary, you must ensure that your company has the accounts system needed to minimize chances of loss. You should not just wind up your business based on persistent loss-making. You also need to ensure that you have put in place all accounting measures required in maximizing profit. And you also need maximum utilization of every dollar invested.