Whether you are a sole proprietor or a business that employs hundreds (or thousands), the one common denominator is financials. Knowing exactly what revenue is going into and out of your business today is critical to opening your doors tomorrow.
In fact, at least one survey revealed that fully 82% of businesses fail because of money management issues. Why? It’s not because of a lack of good intentions, but a lack of knowledge and awareness.
Here are our top five reasons to keep your books up to date:
Manage Expenses. If you’re not recording your expenses when they happen, you may find yourself facing a bill you can’t pay or committing to an expense that you think you have the money for but find you don’t. Knowing on a real-time basis what you’ve spent and what revenue you’ve taken in are critical for daily operations.
The “B” Word. Yes, we’re talking about your budget. It’s one thing to forecast a yearly budget but, to really work for you, budgets need to be analyzed against your actual monthly spending numbers. Planning is great, but we can’t account for the dynamic nature of business realities that may prompt you to spend more in an area than you anticipated. When that happens, other expenditures may have to be looked at and potentially shifted as needed.
Forecasting. Understanding your business’s cash flow is incredibly important for several reasons. If you make quarterly estimated tax payments, forecasting your annual revenue will help you accurately estimate those payments. When making decisions that will present a long-term investment, such as a new employee or a business loan, you’ll want to be reasonably secure in your anticipated future income to cover those expenses. Finally, forecasting will help you in your future business planning and goal setting.
Outside loans or investors. To grow your business, you may be considering seeking additional financing or partners. If your financials aren’t current, not only will the bank or potential investor not have the information they need to make an informed decision, but you’ll be sending the wrong message on the overall management of your business. In other words, set yourself up for success by having your books accurate and up to date.
Peace of mind. We talked about the stress toll of financial worry in an earlier blog. What worries you more? What you know, or what you don’t know? For most of us when it comes to our finances, it’s the fear of the unknown coupled with the stress of procrastination. Keeping your books up to date will help in several potentially stressful areas. You’ll avoid the end-of-year tax panic that comes with rushing to get your books up to date. When an unexpected emergency rears its ugly head, you’ll know just where you stand (and your excellent forecasting and budgeting will have allowed you to create an emergency fund). Finally, it’s hard to overstate the peace of mind that comes with knowing just where you stand financially.
At LifeLine, we understand just how much rests on your shoulders as a business owner. You work hard, but you only have so many hours in the day. Let us help.