I personally have done small business bookkeeping for almost 15 years now. Over that period, our bookkeeping service has worked with lots of different businesses, helping them with their outsourced bookkeeping needs.
When it comes to small business bookkeeping, we have seen it all: from the really good, to the just plain ugly. What we have noticed is that many small businesses have one area in common where they could all do better.
The majority of small businesses could be much better at not wasting money.
Small Businesses Waste Money
When I look over a set of books, typically I see all sorts of areas where businesses are wasting money. In the early stage of a business, when funds are tightest, you would think that most owners would be careful with their money, but more often than not they aren't and they waste money.
Here are some common areas where I see small businesses waste the most money:
Meals & Entertainment - People love to go out to eat! Believe me; I also love to go out to eat. However, when it comes to your small business, be careful with your money in this area. You should try and only spend money on meals and entertainment when it is going to pay off and produce income for you. Additionally, you only get a 50% deduction on these expenses, so spend wisely.
Travel - I also see people waste a ton of money on travel. Much like meals and entertainment, sometimes you do legitimately need to travel for business. However, with all of the great tools available on the Internet for virtual meetings like Zoom, you can drastically reduce your business travel.
Auto - People love to spend money on their cars and then run it through their business. Just because you put your logo on your car does not mean you can write it off as a business expense. Remember, you can either take the IRS standard mileage deduction or take actual expenses for the business portion of the costs only, but not both.
Personal - Another thing I see people do is use their business account like a personal bank account. Be smart and separate out your personal transactions from your business accounts and never co-mingle business and personal expenses; it just leads to problems.
Create a Small Business Bookkeeping System
One reason I feel that small businesses waste money so freely is they don't have a good way to report on their income and expenses, nor do they have the expertise to analyze the data and draw conclusions.
Running a business without a good bookkeeping system in place gives you a false sense of reality when it comes to how your business is performing. Rather than basing your decisions on raw data, you end up going off of gut feelings. It is really easy to think you are doing well if all you have are your instincts. After all, no owner wants to believe that their business is performing poorly.
Putting a bookkeeping system in place for your small business is a crucial step on the path of success.
Measure, Report, and Set Boundaries
We have all heard the clichéd phrase: What gets measured gets done, but it does have some validity.
Measure - Your small business bookkeeping system will be the mechanism that you use to measure how your business is doing. You will use all sorts of different tools within your bookkeeping system to help you evaluate your performance.
Report - Your financial reports will deliver information to you that can help you draw conclusions about how you are doing. Additionally, you should be able to make key business decisions and pivots to help your business stay on track and move in the right direction.
Set Boundaries - Lastly, you can help set boundaries in your business by developing a financial budget and forecast. You should use your budget to help hold yourself and others accountable to certain goals and expectations. Your financial forecast can help you predict the financial future of your business. This will help you spot not only potential problems, but also opportunities before they happen. Your budget and forecast can be two of your most valuable tools that help you stay on track with your goals.
Do you feel your small business has wasted money in the past?
If so, in what areas were you wasting money and how did you make the necessary adjustments to get back on track?
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