Are you having a hard time seeing why you should keep your accounting up-to-date? For many entrepreneurs, the urgency of making sure the books are always current is a to-do that often flies right out the door. “Why should I update books when I’m doing very little business?”
One reason is because when there is little activity to report, you may not do any reporting at all. This, in my opinion, is a big mistake because there is truth behind the numbers. Every line item (present or not) is telling you something about the decisions you’re making and the health of your business.
Another top concern for ignoring accounting work is not knowing how you should manage it. It is common to see a sole practitioner keeping up with their sales but when it comes down to the overall results, many are missing the mark. To me, this practice is as self-defeating as a physical exam where the physician could not get your vitals. How much can they tell about performance if pieces of the puzzle are not there?
Having a fear that it accounting help will cost too much is another big obstacle that should not run you away. At the very least reach out to an accountant or bookkeeper that offers a complimentary consultation. Most accountants will speak with you to discuss your needs before you engage with them. The get acquainted session will help you see what direction to take and from there both you and the accountant can decide on a fee.
By consulting with an accountant regularly you will benefit by having an extra pair of eyes to review the numbers. Accountants are trained to understand the financial details and give you feedback on what is really going on. Accounting is more than adding up the numbers. It can be a powerful part of your business when you use it the right way. Managing the inflows and outflows of money has to be top priority, that is, if you have plans to see your company grow.
Get in Position:
Over the next few days consider the aspects of bookkeeping and accounting that have been neglected in your business. Decide which of these tasks would be better managed by an accounting professional.
If you are doing your own books or have a back office team that can benefit from knowing how to understand and utilize your financial information, join our learning community of entrepreneurs who are elevating their financial IQ on Facebook.
Entrepreneurs are experts in their field but when they first start out many do not expect to be responsible for so many financial decisions. The following list will help you consider what practices you may be overlooking and need to put in place.
- Setup procedures to get bookkeeping down to a science.
- Use projections to forecast cash flows.
- Build relationships with bankers.
- Get information on financing.
- Build a team of experts.
- Surround yourself with people who are smarter than you.
- Delegate to people who enjoy doing the tasks you hate.
- Get to know the main aspects of money management.
- Stay in the know about changes in your market conditions.
- Know what goes into a budget.
- Watch your costs closely.
- Aim to fund the business with adequate cash flow.
- Keep your financial ratios in line.
- Take a conservative approach to projecting sales.
- Remember that revenues and expenses rarely move at the same rate.
- Use marketing ratios to expand on what works.
- Find out what goes into a request for proposal.
- Build a credit profile for your company.
- Invest in assets to strategically add value to your business.
- Always put the company’s cash to work for you.
- Look for investment opportunities to multiply profits.
- Be careful when choosing debt over equity to cover the cost of growth.
- Make income producing activities a priority in your day.
- Understand what you are responsible for in accounting, tax and business law.
- Learn to appreciate the value of numbers.
The use of knowledge is power. As you go forward, which of the tips can you implement now that will be most helpful to your business?
Imagine the opportunity costs you give in exchange for bank fees. A $15 returned check here and a $34 bounced check there can really add up in a small business. Not to mention how much it drains your profits. Bank fees are a cost of business but with a bit of discipline you can get them under control.
Keep check registers accurate.
One cause of bank overdrafts is not keeping track of outstanding checks. How many times have you issued a payment to a vendor that didn’t clear right away? You check your bank account to see how much money is there but may overlook the checks and ATM withdrawals that are still outstanding. Instead of relying solely on what the bank reports, cross-check it with your internal records. To avoid overdrawing your account, be sure to keep an eye on checks that you write that vendors have not cashed and deposits that may still be on hold.
Monitor your account balance.
Two convenient ways to check your bank balance is by with online banking and access by phone. Financial institutions are making money management even more convenient by offering solutions like mobile banking. These apps are a great way to stay on top of your balances with features like mobile alerts. In either case, 24-7 access reports transactions and balances in real time. Remember, what you see on the check book register is not always what you get so be sure to take advantage of these tools and make any adjustments.
Budget. Budget. Budget.
Estimating cash flow means figuring out how much money you expect to have and when it should be available to pay your bills. The key to remember is a forecast is only your best guess. It is a tool that gives you an idea of where your business stands financially. However, as with most things concerning business, there is no guarantee. When it comes to managing money, it all boils down to this: Cut checks and make payments only after you know for sure that adequate funds are there.
So I’d like to know what is your take…
How do you handle money to avoid bounced checks?