As a small business owner you should make it a requirement that you understand your finances. Your bookkeeping should be the foundation of your small business. Strong bookkeeping can help you grow, find funding and eventually exit the business. Many business owners don't understand the importance of their finances until they have felt that pain. That pain can come in the form of someone stealing from you, getting denied for a bank loan or the business going bankrupt. Once you have experienced the pain you realize that it is important to understand your small business finances. Here are four reasons you need to understand your small business bookkeeping and what you can do with the information.
Identify Weaknesses and Opportunities
Updated and accurate bookkeeping can reveal a lot about your business. The problem is many business owners let their bookkeeping fall weeks or even months behind. A business without updated bookkeeping is literally running blind. Bookkeeping can reveal both weaknesses and opportunities for your business. When faced with difficult times small business owners have two choices: cut expenses or increase sales. Most business owners' first instinct is to cut expenses. Why is that? Does that mean that most businesses expenses are too high? If you are good at running your business you should be controlling costs all the time. Don't use your bookkeeping to only look for areas to cut, look for growth opportunities as well.
Grow Your Small Business
Your bookkeeping can help your business grow. Many small business owners don't see value in their bookkeeping until they are shown how to use it as a tool. A bookkeeping system built for scaling is the first step. Start your bookkeeping correctly right from the beginning. Too many small business owners fall behind on their bookkeeping when they are starting their business. Starting your bookkeeping fresh, with growth in mind from the beginning will save you headaches, time and money down the road. Identifying what is important to you as an owner will help you find value in your bookkeeping. Set your bookkeeping up correctly the first time and use it as a tool to help you grow your small business.
I have seen a lot of business owners seek funding and fail due to lack of accurate financial reporting. I am fairly certain that not one bank or investor is going to give you a dime unless you have a concrete bookkeeping system in place that has been audited by a CPA. Investors and banks love to hear an idea that you are passionate about, but they will want to see financial projections as well. Without accurate bookkeeping, historical financial data and reasonable forecasts you will find it difficult to get money from anyone. Many prospects approach us because they were recently turned down by a bank or investor for not having their finances in order. Can you blame an investor for not wanting to give you money when you are not organized financially?
Your bookkeeping should be a major player in your exit strategy. How can you know where you are going if you don't know where you are currently at? If your bookkeeping is accurate you should know exactly where you are at financially. You should use that information to develop where you want to go; and finally where you want to exit the market. There is no way to set a forecast and a goal if you don't have accurate books to begin with. Develop a forecast out for 5+ years. Monitor your actual performance against your forecast and revamp it often. Your exit strategy will definitely change over the years but without bookkeeping you have no way to develop or implement an exit strategy.
As a small business owner it should be apparent that you need to understand your finances. Accurate bookkeeping can help you grow and eventually sell your business if that is what you desire. It all starts will a solid bookkeeping system that is accurate and updated often.
What made you realize that your bookkeeping is important?