As small business owners, we are well aware of the roller coaster of emotions this path can take us on. The truth is, running a small business is one of the more challenging career choices a person can make. Nothing is certain, but that can also be the thrill of it.
But as you are wearing way too many hats, we sometimes put the most important tasks on low priority. The feeling of being busy can be quite a destructive phase of our entrepreneurial learning path due to its deceiving nature. Guess what, being busy does not always equal profit.
Keeping our books clean is one of the most impactful ways we can spend our time, however many businesses find themselves flying by the seat of their pants when it comes to their finances.
It is no shock that most businesses that go bankrupt don’t have healthy financial habits.
Here are 3 key reasons why keeping clean books will help you make better decisions and contribute to your future success as a company.
Reason #1: To Hire or Fire?
In the early days, most small businesses begin as a one or two-person show. It is an exciting time when you get to a point where you can begin developing processes in order to bring in some additional help. This is a clear sign of growth! Right?
This is the reality: Just because you need help, doesn’t mean you can afford it.
On the other hand, what if your inventory doubles in price? Or maybe a couple of clients drop off and sales aren’t closing fast enough? In this scenario, do you have a steady enough cash flow to weather the storm, or is it time to let someone go?
Clean books through healthy bookkeeping practices make the answer crystal clear. Instead of relying solely on intuition, you can look directly at the numbers and know the answer without a doubt. Clean bookkeeping is your safeguard from bad financial decisions that over-leverage your accounts.
Reason #2: Do I need to cut expenses? Am I wasting money?
In today’s cultural landscape, we can find ourselves subscribed to dozens of recurring expenses before we even realize it is a problem. Some of these expenses can be considered wasteful, especially when you may only use them once or twice a year. Other expenses may simply be priced too high and therefore time to go somewhere else.
Another sign of bloat can come directly from your team. The more detailed your books are, the easier it is to see where everyone is spending their time. Is this time billable? Does it contribute to more sales? Or is it simply a waste of time. Remember, time equals money!
A good audit of your expenses, at least once a quarter, is a healthy habit for a small business owner. This is where you can cut costs and increase profits in just a couple of short steps.
Reason #3: Should I be investing my money?
There comes a point in small business where your sales are up, your profits are nice, and you are working daily to maintain harmony. What a lovely phase this is!
But have you ever considered having too much money sitting in a bank account?
There is a general financial rule where you want to have enough money in your bank account for a 6-month runway, but then what?
A part of bookkeeping is to have your finances so well organized that you can identify when you get to the point of investing. How much and where to put the money is up to you, but it’s guaranteed that you will be wasting money every year if you leave it sitting in a low interest or no interest bank account.
When To Manage Your Own Books? When To Hire Someone Else?
Did you know it is quite common to hire a bookkeeper for only a few hours a month? Depending on how many transactions you accrue in a month, the cost to invest in a bookkeeper may be more affordable than you think.
This is all based on where you are in your business, however. If you can cut expenses by doing it yourself, and that is helpful to you, then nobody can blame you for making that decision. The point is that the financial transactions are logged and reviewed on an ongoing basis.
And no, that does not mean once a year when taxes are due!
If you found this article to be valuable and would like to get a quote on how much KGC’s bookkeeping services would cost you each month, please feel free to reach out. I offer consultations for $50, either leaving you with resources and tips you can apply to your own books, or the consultation fee is applied to your first invoice when we begin working together!