Accurate books are the starting point to understanding your small business’ profitability and financial position. And the quicker you get those numbers finalized each month, the easier it will be to make informed decisions that drive the company forward.
The problem is that while publicly traded organizations have the teams in place to close their books within a couple of days after month’s end, small businesses just don’t have the same bookkeeping resources. Maybe you’ve experienced this with your own business? Owners are in the trenches every day putting out fires and wearing multiple hats, and many times that means bookkeeping is the last thing on their mind – even as invoices and expense receipts begin piling up.
That doesn’t change the fact that this is critical work that needs to get done. Here are four activities you can progress with once books are closed in a timely fashion:
Identifying non-recurring transactions
By recognizing these occasional transactions, you can understand the current implications of those transactions on your small business and what the potential impact will be on the company moving forward.
Determining cash position
Cash is usually tight for many small businesses. If the books are completed quickly and accurately, you can determine what your cash position is, analyze payables to know what’s due, and quickly ascertain how long some of those payables have been outstanding. You can also analyze receivables to aid in the cash management process.
Comparing actual results to budgets
At Evolution, we always want the companies we work with to compare their actual results to the budgeted numbers so they can see how they are actually performing versus what ownership had planned entering into a new month or year. This helps with the revenue side, expense side, and the balance sheet.
Making strategic decisions
You need to have good numbers to see where you’ve been and where you are today, so you can then reasonably predict where you are going. The quicker you get your books done, the more time you will have to analyze those numbers and make strategic decisions such as implementing different initiatives or making changes within the company.
The work financial management personnel do each month impacts so many other departments within the organization. As small-business owners, it’s critical to look at who you have in those positions, if they are the right people for the job, if they can contribute to the balance of these activities, and if they are strong leaders. On top of that, having valuable documented policies and procedures in place as well as the right financial accounting software can help streamline the bookkeeping process.
Small businesses that maintain a professional bookkeeping schedule or a “close date” goal find that doing so allows them to move all related initiatives faster and to make better decisions overall. Interested in more business best practices as you grow your small business? Contact Evolution today.