Finance 101 - Doing Business By The Numbers

The Opportunity

Your business is off the ground, you have money coming in, and money going out. Unfortunately, you’re spending more time managing your money than managing your business. If you’ve ever found yourself-

• Tracking down missing receipts to resolve a discrepancy
• Finding out that a check bounced due to a mistimed deposit
• Doing some embarrassing talking and/or letter writing to repair damage that (ahem) incident did to your reputation with a crucial supplier
• Trying to figure out whether discounts or promotions are costing more than it’s making
  

You used to have a difficult time keeping your eyes open in finance classes in college, but now you’re considering hiring a full-time accountant just so that you don’t have to deal with the finances and can concentrate on what you do best- managing your business.

The Solution

Unfortunately, although you have gone into business to offer a product or service, the success of your business is, in many ways, measured by the bottom line. Even if you hired a full-time accountant, you would still need to have a basic knowledge of accounting, how it works, and how to apply its basic principles in order to run a successful business.

Implementing a sound financial system, and keeping it as simple as possible, is one of the best possible investments you can make in your business.

Automated Tools

There are a number of products on the market that will do nearly everything for you. An integrated product that connects all of the transactions you routinely do might be the best choice for the novice (or drafted) office manager or bookkeeper to keep track of everything. Make a list of the functions you need before you go shopping, read the reviews, and even “test drive” the product to see if it will actually work for you if possible. Functions that can typically be automated (with a single product or a suite of products) include:

• Estimating jobs
• Billing/Invoicing (Accounts Receivable)
• Budgeting/Forecasting
• Collections
• Making Deposits
• Paying bills/buying supplies (Accounts Payable)
• Financial Reporting
• Tax calculation

Make sure that the product you buy has a way of handling things like discounts, price fluctuations, and other things that affect your business easily.

The advantages to an automated tool include:

• Avoiding costly mistakes
• Recognizing trends and opportunities more quickly because of easy, graphical reporting
• Saving time that can be devoted to other areas of the business
• Peace of mind- the feeling that things are under control and you “know where you are.”

Simplified Filing System

Now you have an online system set up to accomplish every transaction your business does. Unfortunately, all of these digital improvements cannot make the paper behave.

You have inboxes, shoe boxes, filing crates, filing cabinets, and papers in binders with holes punched in them. You devote a lot of time to shuffling all this paper around, but still panic whenever you realize you have to locate a specific piece of paper. How can you make this easier? Disorganization leads to lost money- in the form of:

• Unopened deposits that could be in the bank earning interest
• Unopened or misplaced bills that will incur late fees
• Rebates filed too late or not filed
• Tax exemptions that could be taken that aren’t documented well enough to justify

In The Courage To Be Rich, Suze Ormon describes the desk in the home office of a physician who is earning $100,000 per year but can’t figure out why he’s always stretching to make ends meet. The discoveries in that desk are very revealing.

In businesses, good organization and “housekeeping” practices are even more important. Setting up an easy, simple filing system and devoting a little time at the beginning or end of every business day clearing the in-box, filing items, modifying the system to add or consolidate folders is time well spent. The simpler the filing system is, the less expensive and frustrating it is to maintain yourself, or to get help maintaining it.

Always make sure your online system is backed up with the proper documentation, and that the paper documentation is synchronized and up-to-date online.

Knowing When to Seek Help

Lawyers and accountants are very expensive, and with good reason. They can bail you out of some tough situations. Although it isn’t as well known, and does not make for dramatic courtroom drama TV, they can also (generally much less expensively) help you prevent a lot of tough situations.

When to See A Lawyer

• To review a startup business plan for potential legal troublespots (or ways to avoid them.)
• When incorporating or making a change to an incorporation
• When reorganizing your business entity
• When considering a product or service you haven’t offered before and are unfamiliar with the legal ramifications

When to See An Accountant

• To help set up a new accounting system initially
• Taxes (for anything more complicated than a sole proprietorship, a little of an accountants time might save a lot of yours!)
• Whenever you have a question or something “doesn’t seem right.”

It’s a lot easier to “seek professional help” fix problems or bookkeeping loopholes when they’re small than to wait for confirmation that “this really is a problem.”

Conclusion

Getting your financial affairs set up correctly, and keeping them up to date diligently, saves an exponential amount of time in tracking down and resolving problems after they start. Setting up an automated tool that matches well with the way you do business, and setting up your physical (paper) files to match it is not as daunting a task as it was even five years ago. Seeking help when you need to, and when problems are small, is also a good way to save money and headaches- or even avoid potential pitfalls and failures!