Bookkeeping should not be a passive undertaking. When it is, you typically have a business that is not growing. How can your bookkeeping help your business grow? Good and competent bookkeeping finds opportunities hidden in all of those numbers. When you outsource your bookkeeping to someone like Exigo Business Solutions in the Kansas City area, you get business intelligence that helps you track down those hidden costs in your small business that have been choking off your profits and holding your business back from growing. And, the right way to keep the books does not just record profit or loss. When you use the Profit First bookkeeping method, you can start taking a profit from day one and find the financial discipline for better budgeting, cost control, and cash flow management.
All too often, a business that is trying to cut costs outsources their bookkeeping in an attempt to save money. This is a mistake. The better choice is to outsource bookkeeping for a more profitable business!
For example, when you outsource your bookkeeping you can use QuickBooks for keeping track of job costs. Many service-based businesses think they are going great because they are so busy. But, their job costs are high and they are most handling money and not making that much. As the top accounting firm in the Kansas City area, we work with many skilled trades businesses and always advise them to use a real revenue calculation to assess the health of their business.
Which jobs are making the most money and which jobs are you doing for no profit at all? This is not always obvious unless you use tools like Custom Reports with QuickBooks are business intelligence software applications like QQube, Spotlight Reports, or QBAR.
Good inventory management is extremely cost-effective. When you use QuickBooks to manage your inventory, you will cut out excess inventory by correctly calculating lead times and spotting products that only sell in season. With an automated system, you will reduce the labor and cost of your operation and allow oversight from a central location. Furthermore, good inventory control helps you spot the items that you are always running out of so that you can order on time, not miss sales, keep your customers happy, and see your profits soar.
If your current bookkeeping setup is not up to the task of handling inventory, using advanced QuickBooks solutions, and more, it is time to outsource your bookkeeping and it will pay for itself.
When your business is not growing, there can be several reasons. You do not have enough customers and/or you are not charging enough for your products and services. You may not be marketing effectively which would explain the lack of customers. You may not be taking advantage of the internet with a website and social media presence. If that is the case, you need to read our article about SEO and how to get attention for your website. But, the best tool to start your business growing is your bookkeeping. You simply need to use it correctly. Good cost accounting, using your bookkeeping will tell you what products and services are the most profitable and which are “loss leaders” at best. The profit from any product or services is not what you are charging for it. The profit is what you are charging minus the expenses that selling it will incur. To understand this you will often need to dig a little deeper and use your business intelligence software. When you stay on top of this sort of issue, you will start seeing the results on the bottom line. Working with a knowledgeable and skilled accountant can make all of the difference in the world.
An important thing to remember when you consider growing your business is that growth and profits are not always the same thing. Use your bookkeeping to understand how much more money you make by moving into a new geographic area, offering discounts to double your sales volume at the cost of profits, and more. Your ideal situation will be when you so organize your business that you are doing less work and spending less money as you grow and make higher profits. This does not have to be a pipe dream. But, it requires accomplished bookkeeping to make it happen.
No matter how accurate, timely, and sophisticated your bookkeeping is, there is one more issue that needs to be addressed if you want to grow your business and make more money as you are doing it. It is the issue of profits.
Successful, growing businesses learn to make profit a habit. When you consider all of the costs of doing business, the difficulty of finding customers and selling to them, then fighting off the competition, profit does not seem to be guaranteed. But, we suggest that you look at profit a little differently. First of all, when you do your work, you have a clear idea of what end result you want to achieve. Especially in the skilled trades, you know what the end result will be before you start the job. Then you do the job in such a way as to ensure that exact result. This is how you need to think of profit if you are going to make it a habit in your growing business.
In the beginning, we said that bookkeeping should not be a passive undertaking. This applies to how you treat profit as well as to all of the other aspects of keeping the books. Bookkeeping is traditionally done using generally accepted accounting principles, AKA GAAP. This approach defines profit as the difference between income and expenses.
Income Minus Expenses = Profit (Loss)
This is accurate and altogether too passive. It leads to the assumption that you may simply be lucky if you end up with a profit. A newer and more effective way to view profit is as the first expense that you subtract from income before you are left with the rest of the expenses.
Income Minus Profit = Expenses
This simple formula is the basis of the Profit First method. You don’t want to make your business grow unless doing so results in higher profits. Using Profit First you make profit a habit and not happenstance.
When you use Profit First you exert discipline over your business and its finances. This starts by setting up Profit First bank accounts. You will allocate profit, owner’s pay, taxes, operating expenses, and other items to separate bank accounts twice a month. The first and most obvious benefit of this setup is that you make a predictable profit from the very beginning. The allocations can be adjusted as needed but what works best is to set up the routine and stick with it.
What everyone says at this point is some variation of “money does not grow on trees.” So, where does the money come from to guarantee a profit? First of all, businesses have cash flow. Money comes in. Money goes out. Money gets put in the bank. Money gets taken as profit. Getting control of your cash flow is essential to the Profit First method. Once you set up the twice-monthly allocations you will use your bookkeeping to track where the money is and where it is going in your business. That is the first step guaranteeing that your profits continue.
The next important step is to find the hidden expenses that sap the strength of any business and rob you of profits. And, now we are back to the benefits of outsourcing your bookkeeping and accounting, using business intelligence solutions to find opportunities and hidden costs, and optimizing your budgeting, cash flow management, and cost controls. Work with the Profit First Professionals at Exigo Business Solutions to implement this effective approach to your bookkeeping and you will make profit a habit. Take advantage of our QuickBooks ProAdvisor services and get your bookkeeping to where it spots opportunities, stamps out business inefficiencies, and drives profitable growth now and in the future.
To discuss outsourcing your bookkeeping, using Profit First in your business, switching your bookkeeping software to QuickBooks, or any other issue related to your business, please feel free to contact us via this link or by calling (816) 394-6818 today.