One should pay attention to the three points:
- Income and expenses are shown upon real emergence but not payment in P&L. For example, the store has made a prepayment for the warehouse rent for a year ahead. In the report, the sum is evenly distributed for 12 months, rather than is written down entirely as expense for January.
- Income and expenses should be reconciled with each other, as far as possible (matching principle). For example, in February the store launched an advertising campaign in social networks. But orders for this campaign began to arrive only in March. Therefore, expenses on ad should be reflected in March, as well as the income, otherwise the profit will be overestimated in one month, and, on the contrary, is underestimated in another one because of expenses which do not relate to this month.
- Acquisition of fixed assets and the principal is not reflected in P&L. For example, the store can have POS-terminals, credit issuance and repayment. Acquisition of fixed assets is a one-time monetary expense and these funds are used for several years. That is why, we show the sum for the terminals by uniform parts in the report during the service life. This is called amortization or depreciation.
The loan principal appears and disappears in bank account and does not influence the profit directly, unlike interest expense which business has to transfer to the bank.
Balance sheet is a report which is usually given at the accountant`s full order. It is a kind of a "snapshot" of what the store is in terms of assets and liabilities.
Asset is what brings us profit, liabilities are a source of assets financing. The balance is made on a concrete date, rather than a period of time, as P&L report or cash-flow statement. It is probably the only report which requires certain knowledge in accounting for its making up. Which useful indicators from the reports on finances can be used by the store owner In profits and losses:
- Net profit. The most important indicator for a businessman.
- Gross profit. Knowing it, the owner understands the maximum sum of fixed costs which he can afford himself. Or, on the contrary, knowing the size of fixed costs, one can determine how many goods to sell in order to cover the expenses by gross profit.
- Ratio of expenses to revenue. A peculiar indicator of inefficient spending — how many revenue shares are taken away by each expenses item.
- Share of each expense in total expenses. Helps to evaluate and get rid of big and inefficient costs.
- Data for calculating ROI (ROMI), bonuses to employees and efficiency of any investment in the store. For example, you need to evaluate investments in attracting a client. The majority of marketing specialists of our clients answered that they consider the effectiveness of advertising, dividing revenue into marketing channel costs and explain this by the fact that the channel fulfilled its purpose — attracted the customer. On the other hand, calculating ROMI from operating profit and seeing a low indicator, it is worth to think: maybe the channel attracts buyers, but something is wrong with the next stages of sales. For example, too high service cost, inadequate administrative spending, refusals and so on.
The faster customers' turnover grows, the more important for them is receiving information at once, not waiting for the end of the accounting period. And along with the implementation of the new module, retailCRM makes possible for customers booking and receiving financial numbers when necessary. Therefore, it is more convenient to receive financial data along with the data on sales.
retailCRM system allows stores to enter data on expenses, prepare financial reports and calculate indicators of store's profitability and efficiency on-the-go.