Allison ran her business on the right foot by putting in place a productive bookkeeping system. As Alison's sales grew, her energy and focus shifted into several directions. While she still recorded her figures of income and outgoing expenses, she failed to exercise proper financial control, and now she's faced with anxiety about her out-of-control budget and next steps.
Whether you have a small or large business, to make a profit, you must make reasonably accurate estimates of your sales income, determine your costs precisely, and manage both effectively. Simply put; you need financial control.
What is financial control?
Bookkeeping requires recording the figures: income and expenditure, receipts and payments, assets and liabilities, etc. When you use the numbers as a basis for effective financial control, you stay abreast of your financial position and make steps to resolve any problems before they become large ones.
What to Do?
Make it a priority each year to set targets and prepare a budget that will move you toward achieving your sales goals. If you have investors, their concern will be the rate of return on investment. If you've invested your own money, you may be expecting smaller returns initially and higher returns over a longer period.
A reliable accounting system is critical for effective financial control. Make sure that you maintain accurate records of sales, invoices, cash receipts, and expenses. Run reports with this information to identify negative and positive trends, which in the end will help you to revise your forecasts and plans.
Bring the account balance up to date and perform a bank account reconciliation every month.
To understand what the numbers of your accounting system or operating statement mean, you should regularly calculate:
Don't Become Overwhelmed
Focus on a few key issues, such as revenue growth, profit, and cash flow, and choose a manageable number of appropriate financial targets.
Bottom Line: A carefully-considered and well-developed budget and forecast will strengthen control of operating costs and have a substantial influence on the total profitability of your business.
Closing Your Books LLC provides ongoing guidance based on an accurate and careful plan. We will revise budgets and forecasts on a regular basis and prepare periodic reports comparing the actual results to the budget plans. If you are in need of assistance developing a realistic a budget schedule a free consultation today.
Lozelle Mathai, MBA, CFEI is an accountant and Founder of Closing Your Books, LLC. She educates women small business owner on how to manage, maintain and understand their business finances before and after they hire a bookkeeper or accountant. Her desire is for business owners to hire based on value and not just on price. Her love for accounting and bookkeeping allows her breakdown complex accounting concepts into "plain English" understanding words of knowledge.