As the year comes to an end, many business owners start thinking about several things: how overwhelming the year has been, the ups and downs of managing a business, and the shoebox filled with receipts for the tax accountant that hasn’t been looked at since they were placed there. This is many business owners’ reality. If you can identify with these challenges, here are a few questions to ask yourself:
On a scale from ONE TO TEN, how organized are your company books?
For many business owners, tax time seems to be a common deadline for accounting. It’s also a stressful situation when financial information is haphazardly gathered at the last minute for the tax accountant. That’s what accountants call a tax time frenzy! Companies incur additional fees when tax accountants need to clean up the books to prepare the tax return.
Keeping the books organized allows business owners to stay informed of the health of the company. When information is scattered, it takes time and energy to locate requested documents from customers and vendors. Without properly tracking vendor and customer bills and payments, companies wind up overpaying or underpaying, resulting in potential liability or loss of revenue. A payment history is important when establishing credit limits to existing customers. Another issue associated with unorganized books is missing data. To an accountant, missing data affects reports, rendering them meaningless until corrected.
Without up-to-date financial information, how are you growing your business?
According to Intuit, Inc., 66 percent of business owners wish they knew more about their finances. It’s important that at any given time, a business owner has current financial statements – profit and loss, balance sheet, statement of cash flows, etc. These statements are used as a “financial toolbox” that helps owners make smart financial decisions such as making large purchases, hiring employees, cutting expenses, tracking inventory and more. Crucial data left out of the books month-to-month will affect those reports you lean on to make solid business decisions throughout the year. A viable company should be making a profit. A business owner needs to keep his or her finger on the pulse of the company, but without up-to-date financial information, this proves to be difficult.
Do you need to borrow money or raise capital to grow your company?
Obtaining financing is more complex than just filling out loan applications. Lenders require past and current financial statements to analyze company performance ratios, cash flow and forecast variance analysis to determine a company’s ability to repay loans. When applying for financing, there are certain requirements that a company must meet during the application process. Even after financing is established, current financial statements are part of loan covenants. Loan covenants are conditions in a commercial loan. To properly adhere to these conditions, a company should be able to produce interim financial statements when required. Investors also require these statements, and use these documents when determining a valuation.
How much time are you spending doing bookkeeping yourself?
I recently spoke with a home inspector who estimated a loss of 16 hours worth of work because he had to retroactively organize his business finances before his taxes were due, an equivalent of $1,600 in gross revenue.
Attempting to play catch-up with business financials will impact business growth as well as the owner’s personal time. Taking the time to maintain the books throughout the year reduces headaches and allows owners to focus on increasing sales and business development.
Get organized, focus on growing your business, and recognize the importance of consistent bookkeeping. Dig deep into the financial reports, and really get to know the health of your company on a regular basis. Make decisions throughout the year with the help of your current financial statements. Don’t be afraid to talk to an expert in the accounting field and invest in a good accounting software program. The cost of accounting can be minimal. The knowledge that comes with year-round proper accounting practices is invaluable to your company.
Jennifer Loftin is the owner of RJL Business Services, an accounting and bookkeeping firm in Vancouver. She can be reached at email@example.com.