Need a New Year’s Resolution for your Business?

How about Organizing the Bookkeeping?

photos by Zach Hoffman  |   Monday Dec. 31st, 2018

With the new year upon us, a resolution to be more organized frequently is among the most common ways people seek improvement. However, for business managers, “tidying up the books” usually is not the first thing that comes to mind about being organized. Yet, for small to mid-size business managers, there are many a bloated shoebox chock-full of business receipts, edges of paper sticking out the crevices much like weeds creeping through sidewalk cracks. 

It is important to understand that being organized matters. A company’s success is highly leveraged by accurate, timely, and complete bookkeeping. Put simply, bookkeeping involves recording the company’s financial transactions and maintaining its financial accounts. Organized bookkeeping is critical because it serves as the central hub for all aspects of business involving money. Furthermore, it enables informed analysis of the company’s financial position and performance on a moment’s notice. Savvy business managers are keen to identify trends, opportunities, and risks balanced against the company’s strengths, weaknesses and available resources. How best for the company to allocate these resources?

Informed managers understand the story behind the numbers, and every organization has a story. Get this wrong and the manager is exposed to a variety of pitfalls with managing the business. Considering that preponderance of business decisions that involve money, evaluating alternatives based on inaccurate, incomplete record keeping can have calamitous financial outcomes. Managers with this kind of track record tend to get burned before too long. Rather, decision making deserves an astute evaluation of alternatives based on accurate data and critical thinking, which improves the likelihood of favorable outcomes. How well do you understand your company’s story behind the numbers?  

Let’s look more closely at how organized bookkeeping is critical for different aspects of managing a business.  

To ensure that tax returns are filed correctly, taxes are paid on time, and that supporting documentation is in place to maintain tax compliance. Errors with tax reporting can lead to significant financial penalties and increased scrutiny from federal and state tax agencies. Anyone up for an IRS audit? No thank you….I’ll pass! 

To be attuned to the financial health and performance of the business. More so than just understanding the bottom-line profit, managers gain insight into any of a variety of key performance indicators involving sales, marketing, operations, and cash flow. What are the drivers of your business and profitability? 

There are answers to questions such as: How liquid is the business? How much has revenue increased and what is the breakeven point for sales? Has customer acquisition spending improved?  Is growth being managed effectively by controlling expenses, or are margins being squeezed? Which products and programs are driving profits? Can we continue to make payroll and meet obligations during slow periods? Will we qualify for a loan or be an attractive equity investment in order to pursue plans for expansion? Imagine the cross to bear by considering these questions when the bookkeeping is behind or fraught with errors. 

To better understand cash flow. One of the top reasons businesses fail is due to mismanagement of cash flow. Make no mistake: Earning profit is not cash flow! A very realistic scenario occurs when a profitable operation is burdened by a shortfall of cash to the point of needing emergency funding, or worse. 

How can this be? Consider that cash is tied up with payroll, receivables, inventory and facilities, the sum of which can leave a manager shorthanded to meet ongoing business obligations, let alone unexpected costs. It is imperative that managers understand the timing of cash inflows in order to meet upcoming payments. Truer words in business have never been spoken: “Cash is king”! Lenders, vendors, and employees will not accept IOUs.

For budget planning. Given the ubiquity of negative news concerning budget deficits at the national and state levels, who could be blamed for regarding “budgeting” as a dirty word? But, for business managers this couldn’t be further from the truth! Budget planning is about charting your roadmap to accomplish goals; to be successful…imagine that!  The measure of success may be based on however a manager chooses to define it, unless otherwise dictated by outside lenders or investors. Who among us is disinterested in achieving goals? 

Two elements are of key importance with budget planning: 1. accurate, reliable financial record keeping, and 2. realistic planning assumptions that rely heavily on recent performance. Budgeting without these two pillars of planning is as useless and unstable as a house of cards. Managers determine a budget plan much as a coach in sports sets a game plan: based on resources, opportunities, and competitive advantages that can be capitalized on. So, the next time you feel the dark shadow of “budget negativity news” setting in, think about what your goals are for the near future and how you will plan to achieve them. Turn those budget lemons into lemonade!  

For reliable reporting to stakeholders. Accurate reporting is critical to convey competence to external stakeholders who use this information to make informed lending and investing decisions. For that matter, reliable reporting is equally important when shared internally among the management team as a means for helping to make informed decisions and evaluate performance. Wouldn’t you agree that we have heard enough about “fake news” during the past few years? What do you say we get the financial reporting right! 

Let’s face it. As nice as it sounds to be organized with an effective bookkeeping system, many small business managers lack time and energy to keep up with it. Moreover, how many managers have the patience and tolerance for bookkeeping?  Is your hand raised?  Bookkeeping is time consuming and tedious with details. Very. Tedious. Unless your abilities cater to these skills, maintaining financial record keeping probably is not what you do best nor is it likely foremost on your list of action items. Remember? There are customers to focus on, revenue goals and growth objectives to meet; all of which are squarely in your wheelhouse of expertise.  

Sure enough, there are do-it-yourselfer types who will try to power through the bookkeeping at all costs (pardon the pun). More so than ever, modern accounting software programs (QuickBooks, et al.) enable business managers hands-on access to financial recordkeeping. You can also use QuickBooks on Cloud using Windows 10 Virtual Desktop to enhance your remote bookkeeping. Yes – these programs are relatively user friendly and you can learn how to use them effectively. But remember?….entering transactions from shoeboxes full of receipts is time consuming! At some point you may contemplate that with only 24 hours in a day and so much energy in a body, is this really the best use of your time?

Good news is that you don’t need to spend big for a top notch team of accountants! A proven way for small business managers to rely on an effective bookkeeping system while respecting budget limitations is to hire a bookkeeper or to outsource the work to a professional firm. In most cases, the cost to outsource will pale in comparison to a full-time employee. This way, you can stick to working on what you do best and leave the tedious busywork to a bookkeeper who eats, drinks and sleeps number crunching. How’s that for a win-win situation to start the new year?    

John Dudas, a Certified Management Accountant (CMA), is the managing owner of Bozeman Accounting & Bookkeeping Services, LLC. He teaches accounting courses at Montana State University and is the founder of Bozeman’s Huffing For Stuffing Thanksgiving Day Run.