Like anything you are trying to build that will last and be successful, it all starts with a solid foundation. And for small businesses, that foundation is a good bookkeeping system. Now the word bookkeeping is sometimes confusing; it could mean many things. For purposes of this article I am using it almost as catch all to describe the many components of a larger accounting cycle. This includes: invoicing, accounts receivable, accounts payable, payroll, bill paying, bank reconciliation’s and general ledger postings to name a few. Basically, it is the role that an accounting department takes in completing a fiscal cycle in order to report the fiscal results of an organization.
The Bookkeeping System
A good bookkeeping system is the starting point to measuring the success or failure of your business. Without one, you have no sense of direction. Are you making money? Are you losing money? How could you be more profitable? It literally becomes the foundation for a road map to success.
There is much truth in the old saying ‘if you don’t have a plan or directions, how will you know where you are going?’ You will wind up lost and wandering aimlessly with no purpose or focus. Well, as silly as it may sound, bookkeeping is the start of that planning and direction. Without a good system in place you will be lost and unable to make educated decisions about how to better your business. At this point you are probably thinking that I’m overreacting. Well, as a CPA I have had hundreds of clients throughout the years tell me that the books are for accountants and bookkeepers. The owners of course say they have it all figured out in their head. I wish I had a dollar every time I heard that. While it’s true some business people are able to get a clear picture of their business on a cocktail napkin, it doesn’t work for most. Studies have shown that multitasking is a quick way to nowhere. Your mind should be clear of all tasks and you should focus on one thing at a time. Having said that, focusing on your books by the numbers is the clearest way to see what your business looks like through unbiased eyes. The numbers don’t lie. There are no arbitrary influences that impede their message. They are what they are.
Your Financial Basics
Your bookkeeping becomes the basis for your financial statements; your financial statements become the basis for benchmarking your performance against your peers. Finally the benchmarking and your financials become the basis for your budgeting. Budgeting of course is the culmination of all that we have talked about so far. The budget is the secret to your profits. Your budget is essentially your goals and desires translated into numbers that show you the path to success. How much money do you want to make? What do your sales need to be? Is your payroll to high? The budget will tell you what your actions must be in order to achieve the desired results. We have now just given you the clarity you need and have showed you what you must focus on to achieve the success you so rightfully deserve.
This is where every business owner must get to. The budget drives your daily, weekly and monthly actions. The moment of reckoning comes when you compare your budgeted numbers to your actual numbers. You will then know if your plan to achieve your desired profits is on target, or whether you are going to miss it by a mile. That knowledge is what will make your business successful. Bookkeeping is the path to your profits and growth. However, without the basics of a simple bookkeeping system, none of this is possible. That is why it should not be under estimated and it should be treated as an investment in your financial future. It’s not a cost center, but rather if used properly, will be your greatest tool in achieving an abundance of profit and growth.
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