If you find your business is providing a respectable income for yourself and your team members, it’s still important to review some bookkeeping basics to ensure you aren’t just running on autopilot.
Take a minute to review these bookkeeping basics to ensure your financials serve you well.
When you can automate basic aspects of accounting, you have more time to focus on your business and customers. Tasks that you’re doing on a repetitive or frequent basis such as common bills, frequent bills not directly related to your customers, and salaried payroll that doesn’t change from paycheck to paycheck are excellent examples of things you can automate.
The areas you should never automate are the tasks that require a human touch. In other words, accounting that can interfere with your cash flow or customer service should be handled manually.
However, with automation, it can’t just be set and forgotten. For the things you do automate, you still need someone managing cash flow on a day to day basis to look for issues. If you can’t do it yourself, you need an accounting advisor to spot issues caused by automation.
Create a schedule to review your automations to ensure you don’t have any lingering subscriptions you thought you canceled still collecting payment. You wouldn’t be the first entrepreneur to realize you’ve paid 10 months of a subscription you thought you canceled.
Getting into the habit of grabbing cash out of the petty cash box and tossing in an IOU is a big mistake that many entrepreneurs can slip into. Bookkeeping 101: Always keep your personal and business finances separate.
If you fail to put the right accountability systems in place, you could find yourself in dire straits. Always use bookkeeping best practices and record everything you spend for the business, especially when it is cash. Working to avoid cash and check transactions in favor of debit cards will make your accounting task more simple as well. Any accounting coach will tell you, never use company funds for personal use.
If you can eliminate Accounts Receivable, do it. We always say, “Don’t solve the customer’s problem until they pay.” If you are not in the actual business of lending money, remember you are not in the business of lending money. Eliminating Accounts Receivable takes lending out of the game, keeping you from wasting time trying to wring funds out of a slow paying customer.
When you are working with reputable companies who need to finance, let them do that through their bank or their credit card.
Many solid businesses have gone under because they decided they had to make financial adjustments to accommodate their customers. As soon as you start negotiating payment schedules, you leave yourself open for missed payments, delayed payments and a cash-flow shortage.
According to expert accounting advisor and author of Profit First Mike Michalowicz, “Profit is not an event. Profit is a habit!” The best way to stay on top of your business financials is to remain in control. The Profit First approach gives traction to any business using a simple philosophy: Allocate money towards profit BEFORE spending on expenses. While this might seem counter-intuitive, this method allows your business to earn a fixed profit margin, while forcing you to be more effective in finding money to meet your expenses and reach your financial goals.
We’ve helped many companies adopt this profit mindset through our Business Compass Program. It takes a bit of know how to get the system set up, but when you work the system, your profits can soar.
Is it time to strengthen some of these basics and build on them to meet your long term goals? If yes, our Business Compass Program might be the answer you need.
Based on 30 years’ experience working with small to medium-sized businesses, this core 12-month program will build your toolbox to run your business with confidence: knowing you’re generating revenue to profit and not just staying busy, seeing that you’re generating wealth and not just getting by.
Schedule a free 30-minute introductory call to learn if the Business Compass Program is right for you.
For more clarity, confidence and control of your business financials, visit our Entrepreneur’s Guide to Accounting for more valuable articles like this one.