It’s sometimes second nature to push your business accounting to the back burner when you’re caught up in running your company. However, you can easily make the time to have the financial information you need at your fingertips. In fact, by using the right small business accounting setup, you can learn everything you need to know about your financials in just 15 minutes a day. You can make financial decisions in real-time, and have 100% financial confidence in everything you do. By setting the right foundation, you can take steps towards creating a system that offers at-a-glance financial reporting that works for you.
A Strong Financial Foundation Sets You Up for Success
The best way to create a strong financial foundation is to embrace a real-time accounting system. Real-time accounting provides the insight you need to make informed financial decisions for your business. You’ll reap the benefits of your success when you switch to this model of accounting.
Real-time accounting tosses aside the notion that a single bank account is enough to run your business. Instead, it introduces the following three business accounts to help you manage your money wisely and avoid unpleasant cash shortfalls:
- Operating expense account to pay bills
- Payroll account to ensure you have cash reserves to cover payroll
- Savings account to build your cash reserve to manage unforeseen costs
With your accounts in place, you deposit a percentage of sales in each account twice a month. This simple method allows you to develop cash flow stability, so you are never taken off guard by cash flow issues. Once you’ve established this base, you can add an account for taxes and one for profits. You can remain one step ahead of tax season while understanding what money you have available to invest in your business goals.
The key to real-time accounting success is becoming more proactive about your finances. Using reports, you can continue to improve your profit-making skills. Reviewing key reports, including profit and loss, balance sheet and cash flow provides valuable insight on where you have an opportunity for growth, or where you need improvement based on monthly/annual comparisons and real-time numbers.
Establish A Habit To Maximize Your Time And Financial Knowledge
Once your accounts and reports are set up, you can schedule 15 minutes each morning to review your financials. This is a formal “meeting” time where you can look at your reports without interruption. You’ll soon find you get a better understanding of which reports to review and when, ensuring you get the big picture of your finances over the course of a month.
Review Your Real-Time Accounts
Your real-time accounts provide valuable insight on whether you have enough coming into your income accounts to cover payroll or upcoming expenses. You can spot red flags that indicate you won’t have the funds to pay your team or cover your financial obligations. By reviewing your accounts every day, you can take action as soon as you notice an issue. For example, if you suddenly have double the amount in your account than you normally do, you might need to investigate to ensure you’ve paid all of your expenses.
With this method, you’ll get into the habit of asking questions. You’ll become better and better at spotting anomalies. For example, if your accounts constantly have a deficit, your accounts payable may need more attention. Your accounts act as a plan that allows you to protect financial activity. You can match expectations to real-time numbers and understand what your true expenses look like each month. You’ll also see how your revenue measures up to those expenses. Now you’re using quality time over quantity time, thus making more beneficial discoveries while having a better grasp on what is happening with your financials. This leads to sound, easy financial decision-making.
A weekly review of your newly established reports should include:
- Profit and Loss: This report should be run with comparisons to watch for trends month to month or year over year.
- Statement of Cash Flows: Look for signs of cash issues where you are spending faster than you are earning.
- New Clients Sales: A weekly review allows you to keep an eye on how your revenue is holding up to expectations.
- Sales and Gross Profit (by category): This breaks down your products so you can test to see where you are succeeding and failing such as a category that tends to lose money.
- Debt Level and Current Trends: Understand where your debt lies so you can make sure it doesn’t get out of hand. It could prove to be the silent killer of your business if you don’t keep it under control.
- Non-owner Payroll and Revenues: How does your payroll compare to your revenue? You want to have the right-sized team that easily manages responsibility without eating up all your profits.
- Revenues by Hours: Consider your revenue based on the hours you are open for business, or the hours you or your team work.
It just takes a weekly review of these numbers to grasp where you stand financially.
Schedule A Monthly Financial Review to Keep You Accountable
While the real-time accounting method provides you with the financial confidence you need to make smart decisions, it also keeps you very close, perhaps even too close to your financials. As a result, you might miss things over time. By setting aside an hour or two a month with accountants for small businesses, you can have a second set of eyes to contribute objective insights. This keeps you accountable while providing a professional’s unbiased advice to improve your financial income using the foundation you built.
Take Your 15 Minute Financial Review Habit to the Next Level
Once you get into the habit of reviewing your reports, you can add some sales tracking to your financial arsenal using these tracking sales data points:
- The number of phone calls or lead forms coming in
- Sales /Ad spending + website + other marketing metrics
- Gross revenue (Sales – Direct Costs) by product line
- Anticipated revenue for the year vs anticipated expenses
The beauty of this method is it allows you to set the foundation as a jumping-off point for financial confidence. Everything happens in easy steps, starting with your accounts, then your 15-minute review and gradually becoming more adept at reviewing your reports. With a small business CPA to provide their input, you’ll see how easily the system works for you.
We can help you set up your foundation with our 90-Day Foundations Program. Learn more and contact us for a free consultation to find out if this program is right for you.