How Clean and Accurate Books Help You Make Better Business Decisions
Being in business is making dozens of decisions on a daily basis. Others are minor and include things such as deciding on a supplier to repurchase. Some are huge such as to put up a new market or to hire three additional employees. However, this is where most business owners make a hard lesson in that what you choose to do relies on the quality of the information you get.
With clean, accurate and up-to-date financial records, you are virtually providing yourself with a crystal-clear look into your business. When they are dirty or old-fashioned? You are flying blindly and you are gutting on the available information. That will be a recipe of costly errors.
What Clean and Accurate Bookkeeping Actually Means
However, before we go into further details, we wish to defined what we meant by clean and accurate bookkeeping. This is not merely being able to write down numbers somewhere. Clean books imply that your financial records are:
Organized systematically. All the transactions exist in the right category. You are not making your sales and confusion it with money you borrowed. Your supplies to the office are independent of your equipment purchases.
Updated regularly. You are not three months later scurrying around trying to recall what that mystery bill was. Sales are recorded within days rather than weeks and months.
Reconciled consistently. Your bank statements are in line with your records. Unaccounted discrepancies do not hang around waiting months of time since no one had time to trace them.
Properly documented. You have invoices, receipts and support on all. When the IRS comes knocking on your door or you need to confirm a transaction that you made six months ago, then you can search it in a few minutes.
When your bookkeeping is up to these standards, you are not merely remaining in compliance with the tax laws (although that is definitely true). You are creating the basis of making smart decisions.
The Real Cost of Messy Books
Until they hit a crisis, most of the business owners do not recognize the extent of the costs incurred due to sloppy bookkeeping. Perhaps, it is tax season and they cannot record deductions. Perhaps, they are seeking a loan and the bank requires three years of sterile financials. Or perhaps they just wake up in the morning and wonder why they are working so hard and yet they are hardly making both ends meet.
Cluttered books form gaffes. You can believe that you are making some profits but you are actually on loss on some products or services. You could think that you have enough money when in actual fact you are on the road to a crash in half a year. You could be blinded on the impending signs of a problematic client or that one of your sources of revenue is drying.
Such blind spots give rise to poor decisions. When you are supposed to reduce expenses, you hire. When you are to be consolidated, you grow. You do not want to deal with issues until they turn into emergencies. This is because the numbers were not telling you the truth.
How Accurate Bookkeeping Transforms Decision-Making
Now, we want to be specific on the benefits of keeping your books clean and accurate, and how it leads to better business decisions in various spheres of your business.
Pricing Decisions That Actually Work
Would you like to find out whether you are setting too high prices on your products or services? And your books, though they are not false. With clean records on all the costs you incurred such as the materials, labor, overhead, and the indirect costs, which you have not been keeping track of, you are able to determine your actual cost per unit or per project.
Most companies do underprice themselves simply because they are not aware of their real figures. They make guesses in their costs, leave out such items as insurance or depreciation of equipment and wind up with a profit margin that appears fine on the paper but disappears in real life. Proper bookkeeping will tell you precisely what it will take to charge to achieve your target margins.
Cash Flow Management That Prevents Crises
Cash flow issues kill more businesses than any other. You might be making money on paper and still be out of cash to payroll or even pay your suppliers. This occurs in cases where business owners fail to appreciate the distinction between profit and cash, or in cases where they fail to anticipate the cash crunches.
Clear payrolls and book keeping will provide you with an insight on your cash flow trends. You are able to see when you are at your busiest and when things are not that brisk. You get to know the average time that takes customers to pay you. You can see whether your inventory is holding excess cash. With this information, you are able to make decisions such as stocking a cash reserve ahead of the slow season, increasing the payment terms with the long term chronic late payers, or schedule of major purchases when cash is high.
Investment Decisions Backed by Data
Should you purchase this new equipment? Hire another employee? Open a second location? These are decisions which demand a lot of investment and one decision can spell back years.
These decisions can be modeled using accurate financial records. You have an opportunity to look at past data to estimate future revenue. You are able to measure the return on investment using real numbers rather than wishful thinking. You can stress-test the situations of what you will do in case the sales are 20 percent less than what was projected.
When business owners have clean books then they are able to make such significant decisions without fear. They are not throwing dice; they are taking measured decisions that are founded on sound information.
Expense Control That Doesn’t Hurt Growth
Every business has waste. Subscriptions nobody uses. The suppliers that charge higher than its competitors do. Procedures that are twice expensive. Waste you cannot see you cannot fix.
Periodic bookkeeping and payroll management dictate trends in expenses which otherwise would not have been noticed. Perhaps this is due to the fact that the cost of shipping per pound has increased 30 percent over the last year due to rate fluctuations and you have not renegotiated the contract. There is a possibility that you are paying thousands a month on a service you hardly ever utilize. Perhaps the cost of labor in one department is far beyond the productivity.
As soon as you can start to discern these trends, you will be able to make intelligent cuts without hurting your business. You kill waste and keep the expenditure that stimulates growth. That is by far a totally different method compared to panic cuts when the cash is tight and it is usually detrimental to the business rather than beneficial.
Strategic Planning That’s Actually Achievable
Need to make meaningful goals in the coming year? You must be aware of your position now and how you brought yourself to this point. Clean books provide such historical view.
You are able to observe the strong and weak months. You are able to determine the products or services that are increasing and those that are reducing. You will be able to discover customer behavior trends, cost, or operational efficiency. This historical information forms the basis of realistic assumptions and realistic objectives.
Proprietors who make business plans according to the correct data are likely to achieve their objectives. Planners who operate on the basis of fuzzy numbers and gut feelings are always either going to miss off badly in one direction or another.
The Connection Between Bookkeeping and Payroll Management
What a number of business owners fail to recognize is that bookkeeping and payroll management are closely intertwined and that one cannot take place accurately without the other.
Salaries usually form a major part of your expenses. Unless you are keeping it on a precise basis, you are losing an enormous portion of your cost structure. However, it is not only about recording wages. It involves finding out the total cost of every employee in terms of taxes, benefits and workers compensation. It is all about being able to trace the cost of labor per project or department to see where your money is really going.
When your payroll management and bookkeeping systems co-exist, you will get insights that you have not been able to get. It is possible to compute revenues per employee. It is possible to view which ones are labor-intensive and which ones are scaled well. Using actual data of the real cost versus the real production of an employee you can make smarter hiring choices.
Making Better Business Decisions Starts Today
The best part of clean and accurate bookkeeping is that you can begin deriving value in it as early as possible. You do not have to wait years with years of historical data to start making better decisions. Even a couple of months of clean records will provide you with some information you have never previously had.
First of all, put your existing books in order. Reconcile your accounts. Bring transactions into the right category. Install a system of periodic updates. When you have been doing the bookkeeping yourself and have been finding it too cumbersome, this could be the moment to seek professional help of those who live and breathe this stuff.
After cleaning your books, put them into use. Do not bury them to the end of taxing week. Examine your financial statements on a monthly basis. Search trends, surprises, and opportunities. When it does not make sense ask questions. You must use your books as an everyday necessity and not a task which you get done occasionally.
The Competitive Advantage of Financial Clarity
The world of business today is all about information. Businesses that know their figures are having a huge edge compared to businesses that play by their gut feeling and wishful thinking. They are able to act fast when they get a chance due to the fact that they are aware of what they can afford. They are able to withstand tempest since they are aware of issues in advance and this is how they get ready.
Bookkeeping is not a glamorous thing to do. It is not the fun aspect of being an entrepreneur. Nevertheless, it is crucial to long term success. All significant choices you make concerning prices, recruitment, investment, or expansion require the availability of sound financial data.
Consider it in the following way: you would not get to the other side of the country with a broken speedometer and a fuel gauge that is only functional half the time. However, most entrepreneurs attempt to steer their organizations using financial data that is as questionable as well. They make ends meet for some time, but at some point, they find themselves lost, out of gas or in worse situations.
It does not take more effort or smartness to make better business decisions. It is because they are better informed. And that knowledge is as a result of clean, correct and consistent bookkeeping.
It is not whether you can afford to invest into proper bookkeeping and payroll management. The question is can you afford not to. Each day that you run without having financial visibility is a day that you are running your actions in the dark. It is not a place that a business owner can take.
Your company can do better. You deserve better. And it begins with getting your books straight.
Have some troubles organizing your books? Sunrise Accountants is a business that focuses on assisting businesses in the United States to create clean and accurate financial systems that promote better decision-making. Get in touch with us now and know how we can help your business grow.