Bookkeeping and Your Business
A majority of small businesses fail within the first five years. A recent study attributed 82 per cent of those failures to poor cash flow management. It is a grim statistic, one that businesses can avoid with the right attention to financial detail.
Bookkeeping is about more than sending out invoices to customers and reconciling your business’s bank statements. It is a comprehensive strategy that involves:
- Developing a budget – As a business grows, there is a fine line between funding and supporting the growth and being conservative with spending. Developing a minimum viable budget will help get your company through lean times and prosperous times.
- Protecting your credit – When businesses start to struggle, the first move to preserve cash flow is almost always delaying payment of bills. Doing this too long will result in a major ding to your credit.
- Managing inventory – Failure to account for and maintain adequate inventory to perform your basic services for clients will eventually negatively impact cash flow. Ordering items you already have in stock or forgetting which parts you used as part of a service to one of your customers are examples of how failure to manage inventory can hit your bottom line hard.
- Maintaining adequate cash reserves – If the COVID-19 pandemic has taught us anything, it is to be prepared for unexpected and unpredictable disruptions to our businesses. An inability to manage a financial downturn can make or break a business.
Turning a Business Around
Too many businesses, especially small businesses, try to do their own bookkeeping. The problem is, they get so caught up in doing their job that they forget to monitor the business. A perfect example is a plumber who has worked 14-hour days and when he finally sits down to do his billing, forgets which parts he used or how many hours he was at a job site. He misses out on charging adequately for his work. The failure to accurately track inventory and time can eat away at a profit which is a recipe for disaster. This is where a good bookkeeping system can help.
I always recommend working with an outside bookkeeper. A good bookkeeper manages a business’s accounting system. If you decide to work with an outside bookkeeper, it is best to find one that provides the following:
- Daily invoicing
Invoices should be issued for any work performed at the end of each day. It prevents the failure to charge adequately for products used and billable hours. Daily invoicing also ensures there is ample money to pay the required weekly GST.
- Weekly reports
Bookkeepers worth their salt will agree to provide weekly reports to their clients. If they refuse, find another bookkeeper. Having access to a weekly report keeps businesses from quoting too low on their services and ensuring they turn a profit.
So many tradespeople are failing to make wages when in business for themselves. Having an experienced bookkeeper in your corner is often the difference between success and failure.