Contrary to popular wisdom, if you’ve seen one business, you have definitely not seen them all. From years of working with local business owners, we can confirm that every business is different. There are very few “one size fits all” guidelines that are automatically right for everyone.
And yet, a good accounting nightmare story seems to have universal appeal. (As a bonus, if your accounting and bookkeeping process is painfully manual, this one may be good for more than just a few laughs.)
So, gather round for storytime with Derek!
Small Business Record Keeping: Manual Billing Nightmare
It’s not unusual for us to take on clients with an “organically grown” and somewhat messy system for recordkeeping. We get it. After all, few business owners get into their business for the pleasure and sheer joy of debits and credits. But what works at the beginning of a business usually needs to be rethought & systemized to ensure efficiency as you grow.
We had a client come to us with an entirely manual billing process that consisted of individually creating invoices with Word and tracking them with a color-coded spreadsheet. This way of doing business was definitely costing them time. Just imagine the workload to type up the invoices, data-enter them into a spreadsheet, check off the ones that have been paid, and hopefully not make any major mistakes in the process. And if a client happened to pay a partial invoice, or accidentally made a double payment, or paid an incorrect amount, the complexity would easily double. This time burden was the main reason they asked us for help!
But there was another cost there, something not as obvious but potentially much more expensive. It was costing them money. It was costing them bad decisions. And it was potentially exposing them to fraud. All because they didn’t have quick, reliable, accurate reporting to make business decisions and have proper controls in place.
The good news is that with a few changes, the client was able to free up a significant amount of time to focus on mission-critical business tasks. Today, they manage billing, accounting, and reporting with a system we helped them build — and it takes minimal effort to maintain. How’s that for a happy ending?
We tell this story in good fun and with no judgment. As a business owner, you wear many hats. Sometimes, and especially when things are happening fast in the business, one or two hats may get left on the rack for a while. It is extremely difficult to manage multiple aspects of business all at the same time. When you get busy putting out fires and making sure the business is operating properly, inevitably something will slip.
One such area that often gets neglected (yet serves an essential role in small businesses) is recordkeeping and accounting. Finding time to manage the books can be hard. However, keeping good financial records is part of the foundation of doing good business.
Businesses Are Built on Numbers
If a tree falls in the forest and there is no one around, does it make a sound? Oddly enough, bookkeeping works the same way. No matter the kind of business you operate, its numbers tell a story — and that story can only be heard when someone is listening.
Many business owners go into business for a reason other than money, but everyone needs to look at the money side sooner or later. It’s one thing to have a business, it’s another thing to own and grow a thriving business. No matter the type of business or its mission, at the end of the day, every business is a game of numbers.
5 Solid Reasons to Keep Up With Bookkeeping
One thing that separates successful businesses from the rest is their conviction and speed of decision-making.
The less time you have to spend chasing down errors, the more time you can have to make decisions and grow the business. On the other hand, the longer you sweep accounting and recordkeeping under the rug, the bigger the eventual headache gets.
It’s difficult to picture and fully appreciate the impact of good recordkeeping, so here are a few tangible advantages that come with having clean, accurate books.
01. Good visibility into business metrics and performance
Understanding your most important numbers (sometimes called Key Performance Indicators or KPIs) allows you to make timely decisions based on accurate information. It is difficult to underestimate the value of this. Is it time to raise prices? Should you be looking for a different supplier? Out of the prospective clients who came in based on your last mailer, how many actually made a purchase — and should you do another mailer? Knowing the answers will give you confidence in making choices.
02. Early warning about issues
Some of the problems in a business sneak up on you. However, if you are actively monitoring things like your A/R cycle, you have a better chance of spotting a collections issue before it gets out of control. And if you have a regular practice of reconciling your A/R balance and your cash balance, you may detect (or even prevent) fraud.
A quick side note about inventory, which seems to be a recurring headache for many of the businesses we work with. Most of them devote time to do a physical inventory once per year at best because a full inventory is a big commitment of time and effort. However, a robust PoS system that ties in with your bookkeeping software can help to automate this to a degree (while also providing relatively accurate inventory numbers on a monthly basis).
03. Foundation for tax decisions
When you have the up-to-date numbers on your business, you can update your tax projections, pay accurate estimated taxes, and make good decisions in the moment — not six weeks after the year has ended.
04. Access to capital
Accurate and timely financials at your fingertips translate into access to bank loans and lines of credit. For those who are contemplating a full or partial sale some time in the future, tracking the financials of the business is the key to getting what the business is worth.
05. Smoother year-end close
When you are in the habit of doing a steady month-end close, your year-end close naturally becomes no big deal. That means minimizing the rush, the mistakes, and the headaches in January.
Best Practices for Small Business Record Keeping
When it comes down to it, accounting and record keeping is a direct reflection of the organization of the business. Messy books may not have caused any big problems yet — but over time, those seemingly small headaches can turn into a full-blown migraine.
Aside from that, clean accounting can drive higher profits. By having accurate records and up-to-date cash flow information, you can prioritize collections on outstanding receivables and structure your accounts payable to maximize cash flow.
There are many tools to help small business owners with the record keeping side of the business, but the most important thing is to dedicate time to get it done. Maintaining good records isn’t optional, it’s a prerequisite to running a successful business.
If you decide to outsource bookkeeping, do your due diligence on the potential partner. You’d be trusting them with (arguably) the most important part of the business. Get clear on what help you need and which tasks would be most valuable to outsource. Also, remember to segregate different financial roles within the business, so one person isn’t handling transactions, record keeping, reconciliations, and authorizations. This is rarely mentioned, yet a key part of small business risk management.
Remember that small business from the start of this blog post? Here is what their result looks like today.
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- We created a new billing process, whereby we now process their monthly billing. It is based on that same spreadsheet. Best of both worlds for the client, as they got to keep a comfortable part of their old system.
- We generate invoices out of QuickBooks, print them, and mail them from our office. We are working to set up email invoice delivery! The client is happy to save time while knowing the job is done right.
- All invoicing data is now tracked, which gives our client a better overall picture of where money is coming from, which are their biggest customers, and when money is due.
- It is much easier to see which invoices are past due in QuickBooks versus the spreadsheet. That means timely follow-up!
- We also reconcile their Quickbooks and provide them a monthly P&L.
We sure love a good turnaround!
If you struggle to find the right approach to bookkeeping and would like professional assistance, reach out to us at TreMonte. https://www.tremontefinancial.com/get-started/ Our team is here to offer a review, an opinion, and a hand if necessary!
Photo by Anna Tarazevich from Pexels