I know you don't need me to tell you this, but it's been a crazy couple of months... for the whole world. Regardless of whether your business was deemed essential or not during the current pandemic, it's been a wild ride.
Now that we've had a couple of months to endure the craziness, it seems like everyone is beginning to think about what the rest of 2020 looks like for their business. There's no doubt that even if you made a plan at the beginning of this year, the pandemic has caused some sort of change.
It's also a time where business owners are reaching out to their advisors and mentors for some brainstorming and guidance. In having conversations around advising, I have seen a common trend.
Businesses will be ready to hire an advisor - hoping to gain insight into their financials and cash flow - and not understand the importance of good bookkeeping.
I've had multiple conversations lately where business owners think the first step is hiring someone to give them insight when, in reality, the first step is hiring someone that will care for their books. And care for them well.
How do I know their books aren't being cared for?
It's simple really. I'll hear things like "I don't even know what my profit is" or "I'm not sure if they match the tax return" or "I have to pull info into Excel to do comparisons".
Good bookkeeping serves two important purposes:
1) Compliance. Make sure your financials give a good picture of income so you know what you owe in taxes.
2) Business insight. Make sure your financials paint a picture of what's going on in your business so that you can easily make business decisions.
A lot of business owners (and bookkeepers) focus on trying to make sure that they check the box on compliance for bookkeeping. However, compliance only gets you so far. At some point, you need more from your financials and good bookkeeping practices can get you there.
Let me give you an example.
Your financials can be adequate for preparing a tax return if all your sales are keyed to an account that we will call "sales". In this case we check the box for compliance. However, you'll have a hard time answering the following questions:
Good bookkeeping provides you insight without any additional work and it's also the input necessary for someone to provide you with good advising. If your bookkeeping isn't optimized, there will be additional upfront work for your advisor, which means a higher cost for you.
If you are regularly having to turn to Excel to dig into details to answer questions you have about business operations, then your bookkeeping needs to be optimized. Fix that easy problem and then think about how additional advising can help you maximize profits and grow.
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