Want to turn your accounting into a business power tool?
Interesting in making your bookkeeping a true secret weapon
for running a more profitable business? Consider these five
techniques...
Trick #1: Get Granular
When it comes to small business accounting, we're all
tempted to take shortcuts.
Why record sales as they occur if you can just batch up the
bookkeeping until the end of the month or, gulp, quarter.
Why get anal about tracking sales to individual customers
if you can just use dummy "catch-all" customers? And why
get nit-picky and track income by individual products or
services if you can use generic product or service items?
Here's why: Granularity in your accounting provides you
with useful insights into your business.
Granularity about the details and timing, for example,
means you see how revenue ebbs and flows through the days
of the week, the seasons, and even time of day. You easily
see when and what a particular customer buys or doesn't
buy. And you see what products or services are hot.
Get granular, in other words, and you receive hard
actionable insights into your business--such as how to
schedule staff and what products to sell.
Trick #2: Track Trends
Small business accounting systems, like QuickBooks for
example, make it easy for you to compare this week's sales
to sales from the same week last year or to compare your
year-to-date revenue, expense or profit between years.
And this sort of bookkeeping seems boring. But here's the
reality sandwich...
Spotting a trend—increasing sales or decreasing
profits—as soon as it appears allows you to exploit
strengths or work on threats as soon as they become
visible, which is probably months before the trend is
visible to competitors.
And a related point: Tracking trends of course also means
you spot changes in trends early, which almost always an
information windfall. A trend of growth changing to a trend
of decline, for example, often signals cataclysmic trouble
in an industry. And a trend of stability or decline
changing to a trend of growth may portend wonderful new
opportunities.
Trick #3: Categorize Customers and Clients
Your accounting system stores quite a bit of information
about your customers. But considering taking your
information gathering one or two steps further.
For example, I recommend you categorize where your
customers come from in terms of referrals, web site
visitors, direct mail, newspaper advertising, and so on.
You might also be able to categorize customers by size or
some other meaningful-in-your-industry factor.
If you categorize your customers, you can aggregate
financial data by customer categories and gain insight.
For my accounting firm, for example, I track where clients
come from. As a result, I know that a dollar spent on
newspaper advertising produces about a dollar of revenue,
that a dollar spent on yellow pages advertising produces
about two dollars of revenue and that a dollar spent on web
advertising produces about ten dollars of revenue.
Categorizing customers in this way means I'm smarter about
investing in marketing and advertising.
And you can often think of other useful categorizations,
too. For example, categorization lets me know which
category of client produces the most bad debt. And
categorization lets me know the sorts of clients for which
I experience the highest rates of attrition.
Note: Your accounting system absolutely has customer
information fields (customer type, salesperson, class, and
so forth) that you can use for these sorts of
categorizations.
Trick #4: Stick to Simple
Now a quick point: Keep your finances simple enough that
your accounting team can handle the books.
Why mention this point? Because we can all make choices or
play accounting tricks that seem to help cash flow or boost
profits or revenue in the short run. And that's terribly
appealing.
In the long run, however, complexity such as capital
leases, borrowing from personal credit cards (like American
Express) to pay accounts payable, barter accounts, and so
on, may seriously degrade the reliability of our accounting
information. And that's a sure, long-term disaster.
As soon as we lose the reliability of our accounting
information, we've lost the most important navigational
tool we have for mapping out a course of business success.
Trick #5: Keep It Clean
My final suggestion: Make the effort and take the time
required to keep your accounting records clean and up to
date.
And here's a self-test you can use to determine whether or
not you keep the accounting clean: You should be able to
produce a balance sheet with logical meaningful numbers.
The cash and receivables balances should be right to the
penny, for example. If you don't know how much cash you
have in the bank, you're in deep trouble. Obviously.
What's more, you shouldn't see any goofy numbers on your
balance sheet. Any goofy numbers on a balance
sheet—strange loan balances, great gobs of
undeposited funds, negative balances—suggest your
accounting records are dirty.
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Seattle CPA Stephen L. Nelson wrote best-seller QuickBooks
for Dummies and edits the popular
http://www.llcsexplained.com and
http://www.scorporationsexplained.com web sites.
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