If you had to make a list of some of the most critical elements of running a business that most new entrepreneurs don't think enough about until it's far too late, bookkeeping would undoubtedly be right at the top.
On a surface level, bookkeeping is simply the process of keeping accurate, thorough records of the financial affairs of any business. But once you begin to dive deeper, you see that it's about so much more than that.
It's what allows you to maintain a proper cash flow—something that has long been a significant pain point for any organization. It's what will enable you to make more accurate and informed decisions regarding growth. More than anything, it's what allows you to start making a plan for the future, which in and of itself is the most crucial benefit of all.
Handling bookkeeping on your own can quickly become a full-time job, which is a bit of an issue since you already have one of those on your plate. But by keeping a few key things in mind, you can enjoy all the benefits of this process with as few of the potential downsides as possible.
The Art of Business Bookkeeping: Breaking Things Down
When it comes to small business bookkeeping, it's critical to understand what you should be doing and, most importantly, when. The financial health of your organization has both short and long-term ramifications. The only way to control your trajectory is to list what you should be doing and why.
For example, weekly, you'll want to pay close attention to things like your cash flow statement and variable expenses. Cash flow is precisely what it sounds like—the money coming into and out of your business. If you're not paying attention to this, you might not realize that you don't have nearly as much money coming in as you think. This is especially true if you're waiting on client invoices to get paid but have no real idea of when they were sent or when they're due.
You cannot assume that just because your revenue says one thing, you have an equal cash reserve sitting there waiting to be taken advantage of. Especially in the situation with client invoices outlined previously, that isn't always the case. If there is a sudden business opportunity that you're trying to take advantage of or if you need to pay for an urgent expense like a new piece of equipment or machinery, this is not the time to find out that your accounts don't have as much in them as you assumed they did.
Therefore, you need to have a constant idea of how much cash you have on hand, along with the amount of money required to manage critical aspects of your business.
Variable expenses are a related concept, which themselves are defined as those expenses that don't have a fixed monthly or annual rate. If you took out a loan to start your business, you likely have a set, predictable monthly payment. Unless you miss a payment and get hit with some penalty, that number isn't going to change.
However, marketing changes all the time—mainly if you're experimenting with all the different types of campaigns that you could run. Suppose you've invested in digital advertising on sites like Google. In that case, you're probably not going to hit upon the perfect campaign right away. You'll need to run tests to see what works and what doesn't, which will ultimately impact the amount of money you'll pay. Move into the world of print advertising and run newspaper ads or design fliers. This too, will come with an entirely different set of costs.
As a result of this, you need to make sure you understand your variable expenses at any given time. Only then will you be able to make the smartest and most informed decisions at the moment.
Additional Considerations About Bookkeeping
Likewise, there are a variety of critical bookkeeping-related tasks that you'll want to perform on at least a monthly basis too.
One of these involves getting a business snapshot—something that gives you a clear, concise idea of where you currently stand and the impacts of the decisions you've made over the past 30 days. A business snapshot will not only give you insight into things like your cash flow, but you'll also get to see sales, expenses, income, and more.
The key thing to understand is that these snapshots become more valuable as time goes on. You can compare the last several monthly snapshots to uncover trends and patterns you may have otherwise missed. This, too, gives you insight into what you can do to improve your operations.
Every month, you should also make an effort to stay up-to-date on what all your expenses are. Yes, there are certain “costs of doing business” that you'll never be able to totally eliminate. But if you take the time at least regularly to look at where your money is going, you put yourself in a better position to find room for improvement.
Case in point: Maybe that investment you made a few months ago isn't paying off nearly as well as you'd hoped. Unless you look at and understand exactly what you're spending, you're not necessarily going to realize that. Armed with this information, you can eliminate these types of expenses and free up valuable cash to funnel it back into other areas of the business where it can do the most good.
Finally, when it comes to a topic as important as bookkeeping, it's important to acknowledge your limitations. Especially as far as taxes are concerned, the stakes of “getting this one wrong” are simply far too high to go at it yourself.
You're a business owner, and while it's fair to say that your “can-do spirit” has already gotten you quite far. If you're not comfortable handling bookkeeping yourself, you shouldn't feel obligated to do so. Enlisting the help of a trained, experienced professional can immediately help you paint a clear picture of where your business currently stands from a financial perspective and where it might be headed. They'll use bookkeeping software that can help make it far easier to accomplish all the tasks outlined above and more when combined with their own insight.
A financial professional can step in and make sure that you have a solid foundation from which to build from; which will free up as much of your time as possible to focus on those tasks that require your full attention.
If you'd like to find out more information about all the best practices that you can use to get the most out of your business, or if you just have any additional questions you'd like to go over with someone in a bit more detail, please contact our office.