Best Business Practices to Keep Finances on Track
As a business owner, year’s end is a time to evaluate the overall performance of your company —whether or not you’ve achieved set goals and what projections to set for the coming year. One of the most important barometers of business performance is finances. It can be rather difficult to plan for big purchases or set reasonable sales goals if you don’t understand your cash flow, know how a particular service offering performs or recognize the factors impacting your profitability.
Here are three financial practices that will keep your business on track throughout the year, making annual reviews (somewhat) pain free.
1. Diligently Track Your Income & Expenses
You have no idea how many long-standing businesses don’t know how much cash they have on hand. In addition, their method of logging “expenses” is a shoebox full of crumpled receipts. Using these rudimentary methods for monitoring money coming in and going out is not only inefficient, but you are putting your business at risk.
Does any of this sound familiar? If so, take initiative by signing up for (and using) one of the many online bookkeeping platforms like QuickBooks, Xero, or FreshBooks. Having access to real-time updates that show your financial standing can help inform current and future business decisions. If this seems intimidating, invest in a reliable bookkeeper! Having a knowledgeable person on hand to answer questions and log income and expenses, all the while making sure your financial “house” is in order, will save you time, money and many headaches in the long term.
2. Complete Quarterly Reviews
Equally important to the year-end financial review is the implementation of quarterly reviews. Setting aside time to dig deep into your financial statements will not only make your end of year closeout and tax preparation infinitely easier, it will allow you to course correct any negative trends before the negative financial impact is too great. For example, if you notice a drop in sales for a particular offering at the end of the first quarter, you have an opportunity to redesign or restructure the offering, increase or adjust marketing efforts or get rid of it all together. Leaving issues like these undiscovered until an annual review can have a significant negative impact on your business. The essential financial statements you can leverage during quarterly and annual reviews are your: A) Income Statement (aka Profit and Loss Statement) B) Balance Sheet and C) Statement of Cash Flow.
3. Pay Attention to Larger Trends
Look at the macro trends of your business. With your financial statements up-to-date, widen your focus and distill data into valuable information to identify trends and help your business grow. Remember the example we used in #2? Let’s pretend you decided to continue selling the underperforming service. You determined the drop in sales was a fluke due to seasonality and would like to give it another chance. During your annual review, some nine months down the line, there will be a wealth of data to determine whether or not your decision was a good one, and to decide to continue offering the service or not.
Make financial management a priority in the New Year. Take time now to schedule the following:
- Two hours monthly to update your books or get information to your bookkeeper.
- A half-day at the end of each quarter to review your financial statements.
- A full day at the end of the year to dive into your financial standing for the previous year and make detailed projections for the coming year.
Getting into these practices will make success less of a question and more of a certainty.
What are you doing to tame your finances and set yourself up for success next year? Please share in the comments section below.