What Bad Books Cost You

Running a business is difficult.

As a business owner, you need to be on top of a million things. Beyond worrying about competition, market changes, or economic challenges could possibly become, there is one other boogeyman that can sink your business from within.

Bad bookkeeping

Bad books show up in many way, but ultimately carry the same nasty effect: They screw up your business.

Sometimes bad bookkeeping is done at the hand of so called professional bookkeepers. Most often, though, it is the business owners themselves or their administrative staff. Where the wrong person is in the wrong seat to do the job

With more tools available for you to do your own bookkeeping than ever before, the options to mess up your books are endless!

The different applications aren’t always simple to use or easy to comprehend. They require a person to make judgment calls and also know how to set them up properly and use them right on a daily basis.

I see those who manage their own books make these two common mistakes:

1. They do their books wrong because the numbers they put in the books are inaccurate. You can’t rely on numbers that weren’t right to begin with.
2. They are very far behind on their numbers and don’t process in a timely manner. They waste time and wait to prepare taxes.

If your company falls into the first scenario, and the numbers you’re inputting are inaccurate, you’re likely paying the wrong amount (paying too much in taxes or not paying enough and opening your company up to legal ramifications). It snowballs from here.

In scenario 2, timeliness is your issue. If your books aren't closed on a periodic basis, how are you going to be able to rely on them?

When books are caught up 9 months after the due date to get taxes done, you miss out on 95% of the value of having great financials. You can never find sure footing and numbers to rely on.

If it isn’t clear already, you need to keep your books as clean and simple as possible. Avoid these common mistakes:

• Too many credit cards and accounts lacking structure. A huge mistake I see is business owners not having boundaries between their personal and business financials. Don’t make personal expenses out of your business or vice versa, or you will always have to be involved in your accounting.
• Huge chart of accounts. The number of accounts that you have should reflect the size of your business. Don’t get caught up in having a bunch of accounts as they only make your finances more messy, leaving you prone to errors. Or not enough accounts, were your financials don't tell you a story.
• Never cleaning up your old records. Go into your bookkeeping software and print out a balance sheet and profit and loss statement, account by account. Do you understand what every number means in every account? If not, drill down and learn!

Managing your company's books is oftentimes too difficult a task to do in-house. That’s why I recommend hiring a professional. Consider some of these reasons when making this decision:

1. Save your time. You are not a professional bookkeeper. There are professionals that can manage your books in 10x less time.
2. The professionals are exactly that — professionals. There are 'tricks of the trade' with every software, and know-how that comes along with working in a piece of software every day.
3. Accountability and timeliness. A good bookkeeper can deliver complete and accurate financials on a specific cadence.
4. Useful analytics. By getting accurate financials delivered to you and your team in a timely manner, you’ll be able to reference the numbers and use them as a guide for decision-making, strategy, and goal-setting.

These are just a few of the reasons why I recommend using a pro. I hate talking to clients who are consistently frustrated by the headaches that come with managing their own books.

"So great, Mitchell. Hire someone! How do I know if I have hired a great bookkeeper?"

This is a post of its own, but you will know by reviewing your books regularly.

You can examine your Balance Sheet to ensure the balances for Cash, A/R, A/P, and other accruals are reasonable.

You can also review your monthly P&L and Cash Flow statement to make sure you understand where your cash is going month over month.

• Do the numbers make sense?
• Are they realistic?
• Drill down - are the expenses categorized correctly?

As always, your company is your responsibility. You will have to ultimately need to understand the way your books work. Schedule a monthly meeting to go over the books in detail with your bookkeeper. It is worth it.

Here’s to cleaning up your books and focusing on the more important aspects of your business.

If you are looking to fix up your bookkeeping, and improve tax planning and prep, read about Better Bookkeeping below.

Until next time,

Mitchell

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