You bookkeeping can actually make a difference in the success of your small business. Many small business owners fall behind on bookkeeping because they loathe it. Bookkeeping is an inconsequential task to many business owners until they need it. Many businesses will put their bookkeeping on the back burner until a situation arises when they need it. Examples of when you may need access to updated bookkeeping records include filing your taxes, applying for a loan or trying to raise investor capital for your business. When one of these situations comes up a small business owner quickly learns the importance of keeping an accurate and updated bookkeeping system. Your business bookkeeping does matter and here are four ways your bookkeeping can actually make a difference.
Identify The Good And Bad
It is crazy to me how many business owners operate on a feeling of how things are going. Rather than operating and making decisions off of concrete data they go off of a hunch or a gut feeling. If money is coming in and there is enough money to pay vendors, employees and take an owner draw then everything must be ok right? This is what I call running your business blind financially. A smart business owner uses their small business financial reporting to help them make good business decisions. An updated bookkeeping system gives you the real financial picture of your business in plain black and white (and sometimes red). You should be using your bookkeeping financial reports to look for areas to improve as well as opportunities to make more money. Even when things are going really well a smart business owner is looking for areas to improve, whether that is cutting expenses or increasing sales.
Hold Everyone Accountable
Your bookkeeping system is a great tool to hold everyone accountable in your small business. Internally you can obviously hold your employees accountable. You can make sure your operations people are servicing customers in the appropriate number of hours. You can also keep tabs on your sales team to make sure they are hitting their sales goals. You should be able to track how marketing is doing by identifying the number of leads their efforts are producing. Your financial reports can hold everyone in the business accountable to the forecast and budget that you set in the beginning of the year. Your bookkeeping can even hold you accountable as a business owner. Are you doing a good job of keeping the business on track to where you want it to go financially?
Your bookkeeping can also keep external forces in check like vendors and customers. Just because a vendor sends you a statement claiming that you owe them money doesn't mean it is true. Vendors can make bookkeeping mistakes as well so don't trust them without proof. Tie back outstanding vendor balances and make sure they are valid. Identify missing invoices and request them from vendors before paying them. Sometimes invoices are lost in the shuffle, other times they are invalid or billed to the wrong person. Make sure that you are keeping up on customer balances as well. Don't let your accounts receivable become a mess. Run your AR aging report often and follow up with any outstanding balances especially any old balances beyond 30 days overdue. Keeping your accounts receivable current will ensure your business has a healthy cash flow.
File Taxes Early
Nothing is more frustrating to me than those clients that file for a tax extension. One of the major reasons to maintain your bookkeeping system on a regular basis is to ensure that you file taxes on time. One major mistake I feel that many small business owners make is only using their bookkeeping to file taxes and not reviewing their potential tax liability with their CPA before year-end. Reviewing your tax liability prior to year-end is smart because you can actually do something about it. You can make many more tax advantageous moves prior to year-end rather than after it. Additionally if you are going to owe taxes wouldn't you rather have several months' notice rather than just a few weeks? Your bookkeeping system can do more than file taxes; it can help you run the business as well. Your bookkeeping should be a tool that you use to help you make solid business decisions.
Find Something Unique
Many small business owners don't use their bookkeeping system to help them because they have never been shown anything useful from their bookkeeping. One thing I think our bookkeeping services offer is finding something useful for each business that is unique to them. As I meet new clients I spend a lot of time asking questions about their current bookkeeping system and what issues they are having. I don't spend a lot of time on the mechanics of the bookkeeping itself but rather how they are using it. In addition to how they are using their bookkeeping, how would they like to use it? What information would they like to extract from their bookkeeping system? We develop customized bookkeeping systems that provide the small business owner with valuable information to help them make better business decisions. Working with clients and giving them information that results in "ah- ha" moments is what makes it all worthwhile for us. If we can give you a bookkeeping system that provides you with information you were lacking in the past then that is a success story for both sides.
Your bookkeeping system can actually make a huge difference for your small business. Sometimes a business owner does not see value in their bookkeeping because they have never been shown how it can benefit their business. Don't wait until you have an emergency when you need updated financials to tend to your bookkeeping. There is a lot of valuable information in your books you just need to be shown where it is and how to use it.
What information does your bookkeeping system provide you with that allows you to make better business decisions?