A small business accounting system should help you be more profitable. How? You should have at your fingertips the information you need to help you make informed business decisions. You should know at a glance how much you’ve invoiced this month, who owes you money, and which bills are due this week. Does your system do that for you?
Or are you still keeping track of your business income and expenses in your checkbook?
And please don’t tell me that’s your personal checkbook, just let me wonder…
If you expect your small business to grow and prosper you need to keep track of all income and expenses, and track your profit and costs as you go along. Don’t wait til the end of the year and frantically search for deposit slips and receipts so you can get your small business tax return done. You’ll never make it that way. My motto is, you need to plan to profit.
One small business owner came to me with a shoebox full of receipts and deposit slips. He was running a side business helping small companies with their computer problems. He was just using his personal checkbook to buy what he needed for the business, and putting any money earned in, yep, you guessed it, his personal checking account. He was very disappointed and alarmed to find out his business had used over $2000 of his personal funds in a year. He had lost money on his side business and had no inkling of this until year end. All his business transactions were lost in his personal finances, so he had no way of knowing whether he was making a profit or a loss.
So, whether you’re currently using your checkbook, or an excel spreadsheet, or a combination of online tools to keep your books, there are some telltale signs that your small business accounting system is not cutting it.
- You find out at year end that you lost money last year. This goes along with what I just said above. You should know throughout the year if you’re making a profit or not. If your small business accounting system is not giving you that information, it’s not sufficient for your needs.
- You don’t always pay your bills on time, because you don’t know what bills are due when. If you’re paying bills online, that’s fine, but you should have a system that tells you what bills are due by a certain date. This could be a system of folders by weeks and months, or a software system like QuickBooks or Xero where you can print a payables report.
- Customers send you checks and you didn’t know they owed you anything. Or vice-versa, they owe you money and you don’t know they do, which is much worse. You should have a system that shows you at a glance which customers you’ve sent invoices to, when the invoice is due, and who hasn’t paid yet.
- You want to buy a piece of equipment, but don’t know if you can afford the payments or not. In a proper accounting system, you know at a glance how much money you have available, and you know from month to month how much profit you’re earning. If you consistently make a profit of at least $3000 each month, you know you can afford a payment of $400 a month, for example.
- You have a great opportunity that falls into your lap – a company wants you to clean out all 30 of their rental homes, and they want a proposal now. Do you know what your costs are so that you can give them a price that earns you enough to cover costs plus overhead plus profit margin?
Those are just 5 signals that your accounting system is not serving you properly.
If you want your small business to grow and prosper, you need to do more than just deposit the checks and pay the bills. You should track due dates for your receivables and payables. You should monitor your income, expenses, and profit each month or quarter, depending on the size of your business. You should keep track of your direct costs and overhead rate. And you should price your products or services to cover those costs and your profit.
If your accounting system is not helping you with these things, you need to find a better system or outsource your accounting.
If you’d like help in either area, I can help. Send me an email or give me a call. I can help you find a system that fits your needs and gives you the information you need to run a profitable business.