15 Aug Is it Time You Change Your Bad Financial Habits?
It’s time for some entrepreneurs to admit that they keep too much information in their heads; time to end the excuses about not being good with numbers; and time to acknowledge that while you do have good financial records, you never look at them, because you think they exist only to simplify tax reporting.
If this is you, well, it’s time to change your practices.
Solid accounting information gives you tangible verification of the direction your business is going. To obtain this, it’s all about great bookkeeping practices.
Just try tweaking your budget; measuring the impact of growth on your cash flow; preparing for seasonal downturns; and planning for infrequent payments without relying upon superior bookkeeping. Executing these without supporting financial data is like trying to explain baseball to someone from another planet.
Planning big projects
In planning for major expenditures, you need accurate bookkeeping records. Your financial statements give you enough information to anticipate a variety of extraordinary cash needs. For example, if rising sales necessitate new equipment and personnel, knowing where you stand is infinitely better than scrambling to react to situations as they arise.
Upgrades to computers and software are inevitable. Slow periods are the ideal time to complete upgrades. This calls for retaining profits from more prosperous times; recurring fluctuations in revenue will be easier to withstand if you can predict them, and accounting data tells you which phase you’re experiencing. Forecast these events in advance, create a reserve for the necessary funds, and plan for the effect of borrowing.
Bookkeeping systems are not infallible. They require oversight, which is ultimately the business owner’s responsibility. Start by making sure that all deposits are correctly recorded. Each deposit could comprise a combination of revenue, cash infusions from personal funds, loans from financial institutions, or reimbursements. Your bookkeeper needs your guidance to ensure they are correctly recorded.
Just because you have accounting software doesn’t guarantee accuracy. Ensure the correct dates are recorded for invoices generated by the program. Apply all payments to the invoices. Avoid assigning deposits to a catchall income account; it doesn’t allow tracking of outstanding customer balances. Develop a process for issuing second invoices, making phone calls, charging late fees, and collecting on a timely basis.
Managing cash outflow
Careful scrutiny of financial statements ensures you are setting aside enough money for all your liabilities. Maintain a close watch on what you owe, including your tax obligations. Know when payments are due. Study your cash availability. You often can work out an extended payment plan with key suppliers, but you must act well before due dates arise.
Paying the IRS late always results in penalties and interest assessments. Tax payments should be a top priority. Payroll taxes are the most crucial, because these are essentially amounts that belong to your employees, but you also need to anticipate your own income tax consequences.
Wise business operators with long histories of success have learned the importance of staying on top of their financials. Will you?