Accounting for your business information is generally not the first item on the A-list for a new business owner. Eventually, the owners have to come around and understand that calling the bank for their checking account balance is not the level of analysis that will launch their ship. Of course, you need social media for generating visibility, but even that requires some metrics: how many followers, people you reached on a blog, visitors to your website and what is your Klout score? I’m guessing that business owners find social media much sexier than analyzing the costs of running a media blitz and determining return on investment, but shutting the doors on the business within the first year isn’t sexy either, capiche?
It’s just as important to know the why to track your accounting as it is how. Yes, I believe in QuickBooks and how it automates the information flow of your business transactions. But even if you don’t use QuickBooks or some other accounting software, use SOMETHING! Back in the old days of pegboard systems, Microsoft Money and Lotus Notes, I was not as impressed by the type of software as I was the ability to retrieve accurate information in a timely matter. Those last two, accurate and timely, are the song I sing constantly. It’s great to have accurate, but how helpful is it if you don’t see it at the time you are making a decision on the life of your business?
Starting at the simple level, you need to have a place to store your information, whether it is a set of folders on your computer or in your hanging files. Paper and/or electronic, whatever you choose, be diligent and relentless. Receipts, checks, online bill payments for checking accounts, credit card accounts, line of credit accounts and monies to/from yourself of other shareholders need to have a place in your system. Create (and automate) a tracking system for who owes you money (your Accounts Receivable) and who you owe money to (your Accounts Payable). Learn more about the three financial statements that hold the keys to your business: Balance Sheet, Profit and Loss and Cash Flow Statement. Adopt a frequency as to when you reconcile your information to that of another source, such as a bank or a credit card statement.
Once those basics are in place, step back and ask “What key information do I need to manage my business information?” and “What information could really hurt my cash flow and profitability if I don’t stay on top of it?” Here are some examples of data that may identify trouble spots:
- Billable time spent on a job
- Unbilled time in office
- Costs per job
- Fixed costs for operations
- Average days to be paid on account
- Profitability of items sold
- Profitability of equipment purchased
- Inventory value, including what is outdated
Where are you in this flow of business information? Are you a start-up, expanding, a mature business? Whatever place you are in the life cycle of your business, take a moment to ask yourself if your systems meet your management needs. Identify where you struggle for retrieving the vital information. Make a plan, get the key players, and step onto the road to success!
