Have you taken a look at your internal accounting structure? If not, you may be leaving money on the table.
Business & Financial Coach, Chartered Professional Accountant
You are a successful business owner, and you are so good at what you do. Your clients love you, you love running your business and serving your clients and you’re always striving to improve on your skills. Your business couldn’t be better ... or could it?
As a business owner, much of your time is spent focussing on ways to reach your clients and help them — and that makes sense, because the work you do is important. But the easiest way to increase profits can be overlooked, and that's by looking at your internal accounting structure.
If you’re not keeping your bookkeeping records organized and current, you are wasting an opportunity to tighten your costs and increase the financial health of your business. When your books are current and set up well, you can run those numbers and get extremely valuable feedback on how your business is performing.
The top five benefits of keeping your books current are:
1. Know your cash flow.
Cash flow is one of the most important areas that keeps you in business — if you can’t pay your bills, you won’t stay in business for long. So if you’re short on cash, that will likely stress you out and keep you up at night.
According to a U.S. Bank study, 82 percent of business failure is caused by poor cash management.
When your books are set up with a good system, understanding your cash flow position is as quick as clicking a button to run your report. You’ll know what bills you have coming up, and if you have enough cash in the bank to cover them. This allows for proper planning and if a potential problem arises, you can be aware of the fact before it stresses you out and allows you to be proactive.
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2. Be on top of client payments.
If you want to keep your books current, you have to invoice clients immediately, which gets your payment in the door a lot more quickly. You can also run reports on a weekly basis that will show when clients are late in payment, so you can follow up more quickly and prevent a late payment from becoming an issue. This helps with maintaining excellent client relationships and retention because your client will appreciate your organized and efficient follow-up, rather than having a payment dispute down the road.
Related: 3 Essentials for Building a Loyal Customer Base
3. Save money on late payments.
Current books mean you know what payments are due when and you can manage your cash flow to ensure you have the cash to pay the bills when they’re due. This saves a lot of money on late fees and interest charges. And this helps maintain supplier relations. Your suppliers will value you as a good client, and often offer benefits or discounts for preferred clients. And if you’re in a pinch and need special attention from them, they’ll help you out happily.
According to Sage, one in 10 invoices are paid late, resulting in a global impact of $3 trillion.
4. Know your profit margins and adjust accordingly.
You know what profit margins you want to keep in your company, and when you set up your books to account for each line of service or product you offer, when your profit margins are falling short, you can correct immediately. If a supplier increases the price of a product you need from them, you will see immediately how that will impact your bottom line. When you see the cost structure of the product you sell you can easily make adjustments and scenarios to see how these changes affect the overall margins for the products.
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5. Identify the money leaks before they become a big problem.
When your books are current, you can see where you are spending more on a service than you intended to. Marketing is typically a large expense, so keeping current records allows you to monitor the dollars you’ve spent there and helps you manage your budget accordingly.
Running regular reports allows you to determine earlier on when you are spending too much on a certain expense in your business.
The bottom line is when you keep a good accounting system in your business, your financial reports will identify issues early in the process and resolve issues before they become a bigger problem, and you can plug money leaks in your business very quickly. Just by tightening up your accounting processes and procedures, when you start plugging money leaks, make cost adjustments and changes, you are ensuring you are keeping your business profitable.
When you see how these systems make your life so much easier and help you make your business that much more profitable, you’ll wonder what took you so long to get these systems in place. These systems take a lot of stress out of running a business because you will be confident that you know your business, you understand the financial health of the business, and you make informed business decisions that you will know are increasing your bottom line, the profit line.
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