If your agencies books are a mess, maybe it would be a good idea to outsource your bookkeeping. And, even if your agencies books are in good shape, they may not be showing you the information you need in order to make good financial decisions. Therefore, it may still be a good idea to outsource your bookkeeping. How you arrange your balance sheet can make all the difference in running a successful and profitable business.
As an example, you own an insurance agency, and you need a certain set of skills in order to meet people, sell insurance, and manage claims. And, if you are good at what you do, you are making money, hiring more people, and perhaps expanding your business. Meaning you are very busy and when this is the case, the first thing to suffer is, very commonly, your bookkeeping. When this happens, you really don't know how well you are doing and whether or not there are financial problems just around the corner. This is an obvious reason to outsource your bookkeeping. Knowing your numbers is critical to your overall business health. Schedule a session with an Exigo team member to uncover your profit.
This is where it really pays to outsource your bookkeeping and change the way you look at your balance sheet. Here at Exigo Business Solutions, we use a method called Profit First instead of traditional bank accounting.
In a traditional balance sheet, we have income minus expenses = profit. In the Profit First system, we have income minus profit = expenses!
There are two huge advantages to outsourcing your bookkeeping to someone who uses the profit first method. First of all, you are essentially budgeting and accumulating cash every month. This will allow you to have more flexibility later on when you have cash on hand for expansion or new projects. But, more immediately, Profit First makes you pay attention to where and how you are spending your money from the very first month.
An all-too-common cause of small business failure is running out of cash and not having sufficient credit. You have a great income stream and are trusting that continued expansion of your income will finally overcome all of those expenses. Then a couple of slow months come along, and you do not have the cash or credit to pay payroll and the bills. The Profit First system does not just make you put some money aside each and every month. It forces you to make efficient and wise business decisions.
Pay off multiple loans by budgeting them in the expense category after your budget your profit.
Pay the minimum balances due out of your Operating Expenses account. These should be considered "regular" bill payments.
It makes a big difference which Profit First accounts are checking and which are savings. Although savings accounts generate interest, they may have limits on deposits and withdrawals.
Income, Profit, Owner's Comp, Tax, and Operating Expense should all be set up as checking accounts. The flexibility offered by checking accounts far outweighs interest you get by using savings accounts.
In the Profit First system, real revenue is the valid indicator of the health of your business.
Real Revenue is a term used in Profit First to show a business owner the "real" money their business makes. The top line revenue is not truly representative of the revenue size of your business.
So often in life, seemingly small details can make all the difference between failure and success. On the face of it, it is a simple idea to take your Profit First when doing your bookkeeping. But, by doing this, you then must make effective business decisions to balance the books. This may mean putting off an exciting new project because it is not likely to make money for several years. More often the Profit First approach leads to cutting out unnecessary expenses and allows you to make better informed business decisions.
It is exciting to be growing a business and seeing lots of money come in. But, without sufficient foresight, many small businesses fail within months or just a few years. However, when you outsource your bookkeeping and use the Profit First system, long-term success is much more likely, and failure is rare when you know what is going on financially in your business.
Going back to our insurance business example, folks in that industry need to be good at dealing with people. And they need to know the insurance business from head to tail. That is enough of a job for anyone let alone with all of the other tasks that occur when running a business. Outsourcing your agency's bookkeeping allows you to focus on your core business and use your skills to their best advantage. Maybe you have a bookkeeper, but if all they do is use traditional bank accounting, you are totally missing out on the insights that come from taking your Profit First.. This simple idea allows you to see financial problems as they arise instead of being blindsided by them. It allows you to more efficiently and effectively plan for the future of your agency's business with the knowledge that all of your efforts will not go down the drain if the business suffers a short-term setback.
Yes, you have a checking account to pay monthly bills. But, with Profit First, you are putting money into savings at a steady pace. This will be an excellent cushion in case of a business setback. And, when you need a business loan, you will have sufficient collateral which will make the whole process less painful. When you start a small business, you dream of the day when you will have $100,000 or even $1,000,000 in the bank. With the Profit First System, it will be easier to make those dreams come true and even predict with some accuracy just when that will happen.
If you have been wondering if it is a good idea to outsource your bookkeeping, talk to us at Exigo Business Solutions and learn more about the Profit First method of making your business a resounding success. Schedule a session with a Profit First Professional today.