Why are you in Business?

Let me ask you a question:  why are you in business?  I am sure your answer is to earn money, to make a living, or to prepare for the future.  Then let me ask a second question:  what is your most important tool to manage your money?  Do you keep track of your bills and receivables in your head?  Do you go online to your bank to find out how much cash you have?  If this is how you keep up with your financials; does it make you a bit nervous?

Do you use an accounting program, such as QuickBooks or Peachtree, so that you can give your tax preparer your financial reports in January?  Is that all you use it for?  Maybe you use an excel spreadsheet to track your financial transactions.   Why should we, as business owners, take the time to set up and maintain an accounting program – our “books?”  This is a good question and there are many good answers.  A good program is specifically designed to pull data that you or your bookkeeper enters and then uses that data to create reports to provide you with essential information, to keep your “book” balance reconciled and current, to remind you of important financial tasks, and to make your financial life much simpler.

If I want to know how much money is owed to me, I run a receivables report.  How much cash will I need to pay my bills this month?  I run a payables report.  Will I have enough money to pay my bills by the end of the month?  I take my book balance + receivables (to forecast cash) – payables = Uh! Oh!  I much prefer to say “Great!  I can do it.”  But if it is Uh! Oh!  I need to know that sooner rather than later.  An essential part of my financial management is looking ahead to my financial needs.  This gives me the opportunity to prepare and to stay ahead of the business of running my small business.

An accounting program will create invoices for you which will point to your receivables reports.  It will help you manage your bills by pointing to your payables reports.  It will keep track of your loans, credit card expenditures, fixed assets, payroll, and more.  Want to know your profitability of a single item in your inventory?  There is a report for that.  How much sales tax do you owe for last month?  There is also a report for that.  And, how much money did I make on that job?  Yes, there is a report for that too.  The Balance Sheet, the Profit & Loss, and all the different reports I just mentioned pick up data from the transactions that we entered.

Having good financial data and good historical financial data is essential in creating a budget and forecasting cash flow.  This data will also help you analyze your profitability to see if it is what it should be and whether to make any changes.  This is a good time to meet with your accountant to strategize what, if anything, you should be doing differently.  What is the impact on your tax liabilities?  How much in estimated taxes should you be sending to the IRS and the state?  You know about one-stop shopping.  Everything you want to buy is in one place.  Well, your books are like that too….. we could call it one-stop financial: all your financial data in one place.

To make good business decisions, you must have good financial data.  I know, the products or services you sell are extremely important and should be part of your primary focus.  But you can’t have one without the other.  If possible, keep them current, on a daily basis, so that you have real-time financial data.  Remember….. that’s why you are in business.

 —

Sue McLaughlin is the founder and principal of McLaughlin Bookkeeping Services, LLC and MBS Bookkeeping Seminars. Her mission is to offer small-business clients a fair price for bookkeeping services while delivering excellent customer service.

Sue McLaughlin is the founder and principal of McLaughlin Bookkeeping Services, LLC and MBS Bookkeeping Seminars. Her mission is to offer small-business clients a fair price for bookkeeping services while delivering excellent customer service.