Many small business owners think that bookkeeping has just one role; a means to filing your taxes. Those business owners that have this mindset are missing out on many benefits that a solid bookkeeping system can offer. Small business bookkeeping often falls behind because it is so easy to push to the back burner. If you are not getting any value from your bookkeeping then there is no urgency to update it on a regular basis. Those businesses that are extracting valuable information from their bookkeeping make it a priority to keep the books updated regularly. So exactly what can a solid bookkeeping system do besides file taxes?
Run The Business
Your bookkeeping system should be a tool that you can use to help make critical decisions and move the business in the right direction. If you are only updating your bookkeeping once a year and then evaluating your performance you may be missing out on critical information. Additionally it may be too late to fix things by the time you find out there is a potential problem. I may be influenced by the industry that I am in, but I use our bookkeeping system regularly to assess our current financial state as well as our goals. Those businesses that don't keep their bookkeeping regularly updated are literally running their business blind.
Does sales, management or bookkeeping drive profits? The true answer is most likely a good combination of all three. However, there is no way you are going to know how profitable your company is without regularly updated books. Financial reporting is important to any business but you can't develop accurate financial reporting without updated and accurate bookkeeping. Regular updates to your bookkeeping allows for financial reporting and analysis. Analyzing your financials and communicating the results to key decision makers within the company is a great way to hold everyone accountable to hitting the goals and budgets of the business.
Find Areas To Improve
Another thing that a well-run bookkeeping system can do is find areas to improve. The obvious area that most businesses keep an eye on is their expenses. When a business faces tough financial times they have a choice to make; cut expenses or increase sales. Most businesses choose to cut expenses because it is something they can instantaneously control. Increasing sales doesn't happen with the flip of a switch and that is why it is important to keep a steady stream of leads and new customers coming in. Your bookkeeping system can help keep your sales team on track as well. Set clear sales goals and use your bookkeeping system to report to your sales department their progress in reaching those goals. Use your bookkeeping system to hold your entire company accountable for both your income goals and expense budgets.
Your bookkeeping can identify other areas to improve aside from just financial aspects. Have you ever considered using QuickBooks to track your marketing? By using QuickBooks class tracking you can associate every dollar you make with an income source. This will help you identify what avenues of generating income are working and need improvement. How about reporting on employee time to evaluate how efficient and effective they are? If you are a service provider you would want to know how productive an employee is being with each client. By comparing labor to income you can calculate an effective rate for each client to identify those areas that need improvement.
Your bookkeeping system can help you identify any theft or fraud that may be happening in your business. Tight bookkeeping should be able to identify any discrepancies between your purchases and sales. By comparing and tying out your inventory to your financials you should be able to identify any possible areas where theft might be happening. Your bookkeeping can also input the right checks and balances into your business to keep a watchful eye on cash. If you put the right system in place you should be able to trace every penny of cash payments to the bank and identify any discrepancies. Lastly, don't let your bookkeeper off the hook. You have read all the stories about bookkeeper theft, fraud and embezzlement. If you know how to monitor your system you can use your bookkeeping to make sure your bookkeeper is not stealing from the business.
If you are only using your bookkeeping system to help you file taxes then you are missing out on a valuable business tool. Your bookkeeping system should be able to help you make business decisions, keep the business on track financially and hold everyone accountable in your small business. If you want your bookkeeping system to do more feel free to reach out for a free consult.
What information do you wish you could extract from your bookkeeping system that you are currently missing?