Bookkeeping

In aligning business strategy with financial management, regular bookkeeping is the foundation for the entire process as informed decisions cannot be made without accurate financial data.

Most business owners view bookkeeping as a compliance-driven activity. It is often perceived as a low-value, commoditized administrative function. This is a misconception.

The reality is that Bookkeeping is the most valuable layer of your business as it underpins the finance function of your organization.

The value of bookkeeping is the generation of financial data, used to aid your decision-making process. The ability to generate reports like a profit and loss, balance sheet and cash flow statement can help you understand the financial performance of your business and guide your strategic decisions.

Bookkeeping should be maintained at least on a weekly basis, with the target of closing month-end within 5days. This allows appropriate time to measure your actual results against the budget and set targets for the following month.

On average, 95% of small business owners do not have a budget. If you run a one-man business, it’s likely that you are small enough to have a pulse over your operations. In this instance, you do not need to get too sophisticated with budgeting.

However, once you grow beyond say five employees, relying on gut instinct just won’t cut it. You will need external reporting and systems to provide visibility over your operations and cash flow – used to augment your decision-making process.

Beyond visibility, the value of developing a budget is in the process. It will help you understand the drivers of your business.

For example, in order to budget your revenue, you will need to think in number of leads, average sale value, conversion rate.

 

Revenue equation:

Number of leads X conversion rate % X average sales value = Revenue

By getting granular with the drivers of your business, you can start to manage and measure your daily and weekly activity. With a budget, you can plan your cash flow and be proactive in your decision making – as opposed to making decisions based on gut feel.

Management should be regularly informed of their financial position. Relying on the financial statements produced at year end by your accountant is not enough. It’s old information and mostly useless.

We recommend you review the financial performance of your company on a monthly basis. A meeting should be set each month with management to review the organization’s financial performance.

The reports to review, at a minimum, are as follows:

·Compare current month profit and loss against budget;

·Compare year-to-date profit and loss against budget;

·Cash flow report for the current month, with rolling forecast for next month; and  

·Accounts receivable listing.

Document the actions that fallout from the discussions and delegate them to be actioned prior to the next meeting.

Setting time aside each month to take a step back and assess how things are doing can you help escape tunnel vision of being stuck in the business.

Following this simple process will not only help you be accountable to your goals, but help you make smarter decisions.