When you started your small business, you had a great idea. You worked hard and you are selling lots of products and services, but where are the profits? Should you be working harder or for longer hours? Do you need to find more things to sell? As the top accounting firm in the Kansas City area, our question is, are you managing your business finances successfully?
The expression is too often used and misused, but you do have to spend money to make money. So, taking all of your income and stuffing it into a (hopefully big) sock is not the answer to managing your business finances. There are lots of moving parts to a successful business, especially to a small business with its sights set on becoming a big business. Managing your finances requires not only adequate bookkeeping but bookkeeping on a professional level that includes custom reports such as are found in QuickBooks and business intelligence solutions such as QBAR (QuickBooks Business Enterprise Advanced Reporting). That is why we commonly say that if you outsource your bookkeeping in can pay for itself. That having been said, here are a few suggestions for managing your finances successfully.
Your bookkeeping and accounting needs to be accurate and timely but it also needs to provide you with the insights needed to cut costs where you can, fund promising new avenues in your business, and let you effectively plan for the future.
A big part of managing finances and business success is discipline in this area. First of all, you need reports that ferret out the hidden costs in your small business. Then you need to take seriously concept called Parkinson’s Law. This insight, first voiced by a British civil servant, is that work expands to fill all available time. Its corollary is that expenses also expand to take up all budgeted money (and more). It sometimes seems like a magic that when you set a tight budget and due date for a project that it comes in on time and on budget. To do this you need to start with competent accounting, outsourced if necessary, and then follow through on the reports that you receive.
On one hand this is simply a matter of keeping on top of your bookkeeping and setting a budget, but it can be a lot more. At Exigo Business Solutions in the Kansas City area, we use a different bookkeeping method for many of our clients. It is called Profit First. This way to keep the books guarantees a profit the first month that you use it and instills discipline in how you manage your finances.
The ten cent tour of Profit First is this. Set up separate bank accounts for profit, owner’s pay, taxes, current expenses, and other necessary items (ask us how to do this). Then, twice a month your money coming in is allocated to these accounts. The result is that you immediately are seeing a profit and the necessary areas of your business are being taken care of. Then, you use your outsourced and better bookkeeping to track expenses, find and cut out hidden costs, and get control of your cash flow and budgeting. At Exigo Business Solutions we are Profit First Professionals and can show you how to set this up.
Too many new businesses are hesitant to invoice too quickly, believing that they will irritate new customers and lose any repeat business. This is simply wrong. When you provide a product or service, you deserve to be paid and paid in a timely manner. Send invoices right away and track them to make sure that they are being paid. Bookkeeping tools like QuickBooks make the process easy. If you have any questions, contact us at Exigo Business Solutions.
As soon as your start a small business, open a business account. Keep your business separate from your personal finances. And, if you like the Profit First approach, set up separate bank accounts for profit, owner’s pay, current expenses, taxes, and other areas as needed. When we help you set this up, you will be well on the way to the discipline you need to successfully manage your business finances.
This does not just apply to your personal life but to your business finances as well. The beauty of the Profit First method is that while you guarantee a profit you are also building up that rainy day fund for emergencies or, when no emergencies occur, for business expansion! Setting your salary to a lower level than what your business could support is a good idea providing that you then make sure the money goes into a segregated bank account and does not get eaten up by the effects of Parkinson’s Law!
People go into business to be their own boss and to make more money than when working for someone else. The first task of a business is to get going, pay the bills, and make some money. Then the plan is to expand and make more money. There is a risk at the point when you decide to expand. The way you are doing business at one level may need to change as you move to another level, add more products and services, move into different geographic markets, or take on debt to finance the expansion.
You always need a business plan from day one. We typically suggest LivePlan as an effective tool for starting out and updating your plan. As you move on into areas of business where you have never been, you need sound advice. As an accounting firm that has been in business in the Kansas City area for years and dealt with business expansions, we are always pleased to take a look at your books and how you are managing your finances. Your success and profit is our passion. Contact us at Exigo Business Solutions if you are contemplating a major business decision or if you simply want to outsource your bookkeeping and get a better handle on your finances.