Several times each year at AIS Solutions, we get a shock when new clients show up with their financial data a disorganized mess.
Receipts are crumpled into plastic bags or jammed into the proverbial shoeboxes. Yes, shoeboxes are real. 🙂
When they tell us why they have finally sought bookkeeping and accounting assistance to organize their financial information, they always remark that they are just too busy to keep on top of their paperwork but they need to get it organized for tax season.
This line of thinking, which is a lot more common than you might think, is what is keeping thousands of small businesses each year from making wise business decisions and missing out on legitimate tax deductions.
We can say that the advent of new technology has made it easier for entrepreneurs to keep track of their financial affairs, but these programs are only as effective as the information put into them. If there are great missing gaps of paperwork not filed either manually or technically, if up-to-date financial reports are not produced on at least a monthly basis, how can any business owner really know where they stand?
Reverting to the gut instinct
The lack of reports on which to base logical decisions gives way to the culture of deciding business decisions by “gut instinct” and while some people may be natural savants in their field, there are many more who could have saved themselves from bad investments if they had studied their cash flow and projects first.
When small business owners ask why they need to keep meticulous records regardless of whether or not it is tax season, I remind them that to some degree, running a business is a bit like staging an event that you hope will generate a lot of income in your bank account.
You decide to stage an event and you hire an event planner. But you cannot give them a clear picture of what the budget is, how many people are likely to attend, and where the event will be. You have no idea whether there will be sound equipment or lights available at the venue and what would appeal to the kind of person you are inviting.
Then you wonder why the event planner hastily packs up their files and heads for the door. They know they can’t deliver what you want or need, because clearly you don’t have sufficient data to know it yourself.
Why you need up-to-date financial information
You cannot take your business on a successful journey if you have no idea what road you are on, where you are going, and what obstacles or opportunities lie ahead.
Keeping accurate, up-to-date financial information means that you are constantly aware of your cash flow, you are doing advance tax planning to keep as much of your money as possible, and that you are knowledgeable about your costs per unit, cost per client acquisition, and the strengths and weaknesses of your business.
You also know what your budget is and whether you are in a healthy zone with it, or if you are struggling to sustain yourself.
When you outsource your bookkeeping to a firm that offers Cloud accounting, you can also get all the information you need at any time of the day or night, and the access is there 365 days of the year, 24 hours a day and seven days a week.
When you know precisely what your income is, what money is going out every month and how much is coming in, you save money overall. You avoid incurring late payment charges on invoices due, you ensure that your cash flow is reliable and steady, and you keep up with your sales tax and keep receipts that you can claim at tax time.
It is as important as dreaming up your next big product or acquisition. It is as vital as delivering quality to your clients and continuing to attract new ones.
Your financial statistics don’t lie to you
The good thing about having accurate financial information at your fingertips is that it doesn’t lie to you or say what you want to hear when you are asking it what you should do next. The facts don’t lie to you; they just are and for that reason more than anything, they serve as your reliable counsel.
Your statistics also form the foundation for a reliable and reasonable budget plan, not one with unrealistic expectations or one based on pie in the sky.
You may believe that you keep a firm eye on your bottom line even if your paperwork filing skills are shoddy, but you might be surprised at how many business owners delude themselves this way.
Last year a study performed by Fuqua School of Business at Duke University surveyed 400 chief financial officers in major American firms and asked them what they expected to see in their third quarter performance.
The vast majority of them predicted confidently that they were likely to have a very strong quarter based on the information they had in their heads at the time.
Shockingly, the real picture was dramatically different. Many of these CFOs missed serious concerns that were lurking beneath the surface that contributed to an overall weak performance.
One could speculate that had they studied accurate weekly or monthly reports, they might have perceived these weaknesses and recommended steps to strengthen then before the quarter ended.
Genuine insight into what is really going on within your company is vital and can ultimately be the key to your downfall or your continuing prosperity. If you don’t have a method of gathering, recording and maintaining accurate financial data about your company, now is the time to consider how you can make that happen.
Our mandate at AIS Solutions is to EDUCATE our clients about their numbers so we can EMPOWER them to make better business decisions.
This blog is for you and we hope you will enjoy the content.
Please let us know if there are any specific topics you would like us to address in the future.
Copyright: Elliot Burlingham / 123RF Stock Photo