You work really hard and put in long hours running your small business. But, you never seem to be getting ahead. There seems to be a lot of money coming in, but at the end of each month, the story is the same, no profits left over. Money seems to be missing. Is it your bookkeeper?
If you think that your bookkeeper is stealing from you, you need to take a good look at the books. And, if you cannot make sense of what you are seeing, you really need an outside audit. It could be that your bookkeeper is stealing from you and when you ask an outside accountant, like Exigo Business Solutions, you will find the answer. But, the answer may not be what you expected!
Messy Books Will Hide All Sorts of Problems
All too often in life, we suspect bad intentions and actions when the problem is incompetence, laziness, or an antiquated way of doing things. The bottom line is, if your books are a mess, you 1) don’t really know how well or how badly your business is doing, 2) if your bookkeeper is stealing from you, or 3) if your bookkeeping system is simply hiding the real reason that you are not seeing more profit.
This quote from Walt Kelly may give us a hint as to why money seems to be missing.
Kelly was a cartoonist who used his comic strip, Pogo, to amuse folks while offering political commentary and his homespun philosophy. The main character, Pogo the Possum lived in Okefenokee Swamp and was upset about the amount of garbage cluttering up his neighborhood. While he hid and watched, he saw all of his friends dumping their garbage and he famously said, “We have met the enemy and he is us.”
All too often the reason that no money is left over at the end of the month is that we are spending all of it! (The enemy is us!)
Parkinson’s Law and Its Variations Explain Everything
Mr. Parkinson, who had been a British government worker, noticed that no matter how many people worked on a project, the job only got done when the deadline was reached. He created a “scientific law” to explain it: “Work expands so as to fill the time available for its completion.”
If money seems to be missing and an audit shows that it is not your bookkeeper, think of Parkinson’s Law and its corollaries. “The amount of money spent on a job expands until it uses up all money that is available.”
That, more often than not, explains where your money is going and why there is no profit left at the end of the month! Now, what can you do?
At Exigo Business Solutions, we work every day to maximize the profits of our small business clients. As Certified Profit First Professionals, we do lots of bookkeeping and accounting. Your books will not be a mess when we do them! But, there is something else about how we do your books that will make all the difference in the world. We do your books so that you always take profit first each and every bookkeeping cycle!
How does Profit First work? The Profit First method starts by making a small but very important change in how to keep track of money coming in, expenses, and the profit or loss that is left over. Standard accounting practice says to do this.
Sales minus expenses equals profit (loss).
The Profit First system does this.
Sales minus profit equals expenses.
So, is this some sort of sleight of hand? No, the numbers will be the same, in the beginning. But, the numbers will change and the profit will go up as you use Profit First.
Pogo the Possum said that the enemy was us and Mr. Parkinson provided a little more detail. When you do not have a clear view of where the money is going or how it is being used, expenses always end up using the available money.
Now we know the problem. But how does Profit First provide a solution?
At Exigo Business Solutions we use QuickBooks bookkeeping software for small businesses. One of the important parts for a small business owner is the QuickBooks Custom Report. This report of your finances is set up specifically for your business. It lets you see what parts of your business are contributing to positive cash flow and which parts are causing a drain on your finances.
Along the way, we train our clients in other parts of the Profit First system. How and where you bank your money, how fast you pay off loans, and which ones get paid off first, are important to managing cash flow and routinely seeing your profit first.
In the Profit First system, you face Parkinson’s Law head on. When jobs seem to take too long, set shorter deadlines. When projects soak up more and more money, cut the project’s budget! With you custom reports in hand, you will be able to see the results of your efforts. The twin goals of Profit First are 1) to maximize your profits by maximizing the efficiency of your business and 2) to quit being your own enemy!