You’ve had this great idea for starting a business for awhile and all you want to do is serve your clients. You got your business set up, filed the appropriate forms with ALL of the government agencies and opened a bank account. Once you start incurring expenses or receiving revenue for your business you need to track where that revenue is coming from or where those expenses are going. If you believe the hype on all of the major business podcasts you can do it all yourself. There are a number of online small business accounting programs on the market like Freshbooks or QuickBooks that make it practically foolproof for the small business owner to track their own business finances. EXCEPT, if you want to run a successful business you need more than a program that tracks your business like your personal checkbook.
They are right to a certain extent, those online accounting programs ARE easy to use and have many ways to automate tracking your business. But without the knowledge of a a professional that has been working with small businesses for years the information you can get from these programs is about the same as your bank statement. These programs are supposed to make it easier to get your CPA the information they need in order to file your taxes each year by categorizing your expenses and recording your revenue, but without knowing GAAP (generally accepted accounting principles) you may sometimes be creating more work for your CPA, not less.
The value of good bookkeeping is priceless, the know how to categorize that business trip, the client gifts and the business meals to maximize the value of the information you get out of these programs. A great bookkeeper will be able to help you keep track of where your money is coming from and where your money is going, essential information for your business. Here are some key items you should be reviewing each month.
- Profit and Loss (P&L or Income Statement) – this is the barometer for how your business is doing. If you don’t know how to read one, the first step is learning what goes on an Income Statement and how it provides valuable information on how you run your business.
- Statement of Cash Flows – Where is your money coming from and where is it going? How much did you bring in this month vs how much did you spend? You can get this information from your P&L but the Statement of Cash Flows lays it out in a different format that is sometimes easier to read.
- Balance Sheet – Sometimes referred to as a “parking lot”, the Balance Sheet tracks all of your assets, liabilities and owner’s equity. To put it simply : the money you have on hand, the money you owe other people, and what your business is worth. There are many nuances beyond these 3 basic ideas, but it is a good place to start to understand your financial statements.
When you are starting a business you don’t have time to focus on bookkeeping for your business on top of serving your clients. We recommend that one of the first hires you make, either as an employee or independent contractor is a reliable book keeper that can manage the day to day accounting tasks. With reliable current information you will be able to make the strategic decisions to help move your business forward so that you can serve even more customers and bring your brilliance to the world. You didn’t get into business to be an expert in bookkeeping, you got into business to bring your unique solution to those you are here to serve.