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Do you have a full financial overview, including your accruals?

Do you have a full financial overview, including your accruals?

Imagine you deliver a service or product today, but don’t send the invoice until next month. Is this transaction reflected in your accounts? In accrual accounting, you also include those accrued costs and revenues. This means you have a clear insight of your financial situation at any time and you can make informed business decisions. Find out what accrued costs are and why it is worth including them in your balance sheet.

 

Why having an insight into your company’s financial situation is so important

As an entrepreneur, you probably work very hard every day. However, that doesn’t mean your business is successful. For your business to grow, you need an insight into your financial figures. Is all your hard work earning you enough money? Are you anticipating a downturn or a big investment that you should prepare for? And does your profit-and-loss account take into account the real financial picture at this moment? Often, this last question is where things go wrong.

 

Cash-based accounting versus accrual accounting

Many start-ups and smaller companies have cash-based accounting, and do not book their costs or revenues until the money actually leaves the account or is in the account. This gives you a distorted idea of your profits. Imagine you provide services or sell a product in February, but you’re not paid until March. This transaction will only show up on your balance sheet in March.

 

Accrual accounting takes sales into account when the sale actually takes place. This type of accounting follows the matching principle: you account for related costs and revenues in the same period.

 

Accrued costs and revenues

Accrual accounting therefore takes short-term accruals into account. And they exist in 2 directions:

  • Accrued costs: you have already used services or products which you have not yet paid. Think of monthly cleaning costs that are paid per trimester, advertising costs or an order with a deferred payment. Or you give your customers a volume discount.
  • Accrued revenues : you have already provided services or goods for which you did not yet send the customer an invoice.

 

Accruals are not reserves

What is the difference with reserves in your accounts? A reserve is built up to cover possible losses or investments in the long term. And you know exactly when accrued costs and revenues will be paid, which is often not the case with reserves.

 

Advantages of accrual accounting

Regardless of whether you choose cash-based accounting or accrual accounting, your final turnover remains the same. However, accrual accounting that takes into account accruals does have other advantages:

  • You know at any time exactly what you still have to pay and receive.
  • You have a far more accurate and detailed idea of your turnover – regardless of the terms of payment.
  • You can plan ahead more easily. This allows you to maintain your stock levels and hire the necessary staff in good time.

 

Questions about accruals? Ask CFOrent for advice

Accrual accounting works best if you respond quickly in terms of your balance sheet and profit-and-loss account. No time? Let CFOrent help you. As freelance financial professionals, we closely follow your business figures, correctly estimate costs and revenues of provided transactions and help you to interpret your balance sheet. This allows you to make better decisions, in the short and long term.

Request support or ask your question via contact@cforent.be.

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Management Reporting: Make smarter decisions about your company

Management Reporting: Make smarter decisions about your company

Companies rely increasingly on management reporting to improve their business operations and to stay one step ahead of their competitors. What is management reporting? And is it a must for your company?

What is management reporting?

Management reporting is a form of business intelligence. The software collects data on various business aspects and organises them into a clear overview. This overview provides answers to questions such as:

  • Is it a good idea to hire more employees?
  • Which customers generate most profit?
  • Should we increase our marketing efforts?

Because data are easier to interpret, it becomes easier for decision-makers to make decisions with more impact.

How does management reporting work?

Management reporting collects data on the various departments of your company. Reporting is based on financial and operational data, which are organised into a digital dashboard. It gives you a clear picture of your company’s health over a given period.

Management reporting works with KPIs (key performance indicators). If they are not achieved, you immediately know where to adjust.

What’s the point of management reporting?

Professional management reporting software provides a detailed overview of how your company is performing. It ensures you are making the right decisions and you are not having to chase after the facts. This means:

  • More efficient operational processes in your company.
  • You can monitor the progress
  • Your company remains a formidable competitor.
  • More efficient business management.
  • You are steadily working on improving your business.

What’s the difference between a financial and a management report?

Management reports and financial reports are sometimes mixed up. But there is a big difference:

  • Your company keeps financial reports for accounting purposes. They provide an overview of your company’s performance, but are not detailed enough to make effective adjustments.
  • Management reporting is up to date and combines not only financial, but also operational data. This means it’s easier to make adjustments on time and to monitor your company’s progress.

How do I start with management reporting?

Drawing up a management report    is a lengthy process. This is also necessary if you want to use the software to inform all decision-makers in your company quickly and clearly.

The choice of KPIs, for example, is a real headache: too many causes confusion and stands in the way of a quick overview.

Another issue is the structure of the data: if this is not clear, you will never get the most out of your reports.

Do you need help with your management reporting?

Management reporting provides a quick, in-depth health check of your company and helps you to be more efficient. Do you need an expert who aligns your management report seamlessly with your business and all users? Contact us: We are happy to help you.

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