As a small business owner, you hear this question all the time: "How's business?"
A very typical response is: "Great, but I'm just so busy."
Most business owners are just busy being busy, but I wonder:
How many of them know how their business is actually doing?
Being busy and being profitable don't necessarily go hand-in-hand. Do you know if your business is growing? Do you have a financial plan in place to accommodate for that growth? Do you spend too much time on payroll and balancing your finances each month? Does year end tax planning give you heartburn? I will explain how an outsourced bookkeeping service can actually help you understand how your business is doing, reduce stress, and plan for growth.
#1 You'll Hit All the Financial Checklists
Let's start where we feel it most - stress. After all, why are you looking to outsource your bookkeeping? Probably because you've made mistakes on payroll; didn't plan accordingly for tax season; realized that you didn't make the profits you were hoping for this year; or any number of other financial woes.
Maybe you're not sure where you're planning on taking your business. Maybe you have an idea in mind but not sure how to implement it.
Here's how outsourcing your bookkeeping will knock down your stress levels a couple notches.
- You will always be organized for taxes and always file on time
- You will have up to date financial information for your business, which can aid you in making key business decisions
- You will have great internal controls in place so that you don't have to worry about theft
- You will have an additional set of eyes on your business financials to make sure they are accurate
- You will not have to worry about receivables and payables, which many owners consider simple administrative tasks
- You will never be playing catch up on your bookkeeping
- You will never be late on bills, taxes etc
- You won't have to deal with a stressful task you dislike
Your role as CEO doesn't have to include every aspect of business management. Successful CEOs know when and how to delegate tasks.Outsourcing your bookkeeping will take part of the workload off your shoulders and allow you to focus on running your business.
Remember: Time saved is money saved.
#2 You'll Have More Time to Plan for Growth
A good outsourced bookkeeping company is more than just a bookkeeper. They offer insight for successful financial planning.
When working with a financial advisor or outsourced bookkeeper, you can focus more on the big picture of what you want to accomplish with your business and less on the details of how to get it there.
Creating a vision statement for your business is an important step. How will you know how you are doing if you don't know what you are trying to accomplish?
This financial vision includes a long-term budget, short-term forecast, and exit strategy.
Create a Long-Term Budget
You should develop at least a few different budgets: a budget for the next 12 months and another for the next 3-5 years. The budget should remain unchanged throughout the year and should be re-evaluated at the end of each year.
Create a Short-Term Forecast
A short-term forecast is probably one of the most crucial tools we use to run our business. A forecast differs from a budget in that it changes throughout the year, where I like to keep a budget unchanged.
I prefer to create financial forecasts in shorter increments; typically 2-3 months out.
When I create a forecast for our business, I try to think about three things: What just happened? What do I think will happen? Why do I believe this?
That is a pretty over-simplified version of what I do when I create a forecast, but I like to keep it simple. If you have a solid bookkeeping system in place, then you should know your actual results.
You should have a decent handle on your sales pipeline and expenses. Then you just have to think about anything out of the ordinary and create a forecast.
The forecast tends to be more accurate than the budget because it is more short-term and easier to predict.
Have an Exit Stategy
How can an exit plan help you know how your business is doing? While an exit plan is a much larger piece of the strategic puzzle, it is an important one.
An exit plan allows you to stay focused on the much bigger picture. While a vision and a mission are critical to how business operates day in and day out, an exit plan can help bring clarity to the overall goal.
It is important to review your exit plan from time to time. I don't like to put a specific number on it, but I would say that 2-3 times per year is sufficient.
Reviewing your exit plan will help you stay on track with the big picture.
Even if you don’t plan on selling your business, there is a significant drop-off in stress levels when you know that it’s an option.
Having an outside company analyze your assets and value is essential to understanding the overall worth of your company.
Do you know if you're ready for an outsourced bookkeeper? Ask yourself this:
Do the daily actions of your business support your vision and mission?
Are you still on track to implement your exit plan when the time is right?
#3 You'll Be Able to Set Realistic Business Goals
Compare Financial Expectations and Actual Results
This last step is the most crucial piece to understanding how your business is doing. I also call this step measure and pivot as needed.
As your day-to-day business unfolds, you should be doing a comparison of your actual performance against your expected results. While the budget versus actual is a great way to measure your performance, the forecast versus actual is what I concern myself with the most.
Since the forecast is a more short-term expectation, it is typically more accurate. Therefore, when I measure against the forecast, I'm looking for smaller variances, if any (and hey, if sales are higher than I thought then great).
The forecast versus actual allows you to spot potential shortcomings earlier and make the necessary adjustments to stay on track.
Ready to Grow Your Business?
If you are missing any of the above items like a vision, exit plan, and a forecast you should develop those right away.
Are you keeping up with or exceeding your forecast? If not, can you explain why and are you OK with it? Do you still feel confident in where your business is going?
If you follow these steps you will be able to answer the question of "How's business?" with much more confidence because you will be basing your answer on data, not a feeling.
So, how's business? Want to give a better answer to that question?