With my blog I am trying to convince business owners to use their accounting data to make business decisions. There are many reasons to use you accounting information on a regular basis, preferably monthly. In addition, there are many different ways to use the data.

Accounting data can be used to:
1. Determine how liquid your business is. By calculating a few ratios you can determine if you have enough current assets to pay your current debts. This is particularly important if you have one or more customers who are slow to pay you and you are anxiously awaiting their payments.

2. Assess your long-term solvency. Solvency is the ability to pay your long-term debts. If you are short on cash, will you be able to pay your long-term obligations? Even if you have good cash flow today, is there any possibility this may change? We need to think long-term so that our business can continue to operate effectively.

3. Provide a snap shot of how well, i.e., efficiently, your business is running. The income statement is a good place to see how well, or poorly, operations are generating revenues and managing expenses.

4. Obtain outside financing. A banker or investor will want to review your financial statements and perform their own analysis on the numbers. Your ability to obtain financing will be based on those results.

5. Make purchasing decisions, such as a new truck or equipment, or other business decisions such as moving to a bigger (or smaller) location.

The information reported on the balance sheet and income statement are truly a wealth of knowledge. Many people use the phrase “numbers don’t lie.” These numbers, if used and analyzed on a regular basis, will help you create a very effective and efficient business. In trying economic times, the regular use of your accounting data will prove beneficial for the long-term success of your business.