Bookkeeping can seem like a chore, something you only do because you have to, after all your year end reporting isn’t going to do itself and your quarterly BAS isn’t filled in by magic.
But keeping up to date with your bookkeeping through out the year can help with your business in a number of ways other than just keeping up with your legislative requirements.
More information on your business
Bookkeeping and the numbers that fill your reports are not random. They are the result of what is happening in your business.
- Balance sheets show the status of affairs – how much your business owns, owes and what the business owes to the owner for investments and profits
- Income statements show the story of what changed between balance sheets – how sales and expenses have changed the status of the business
- Cash flow statements show you exactly where the money in your business is going and when – though for most small businesses operating on a cash basis this and the income statement will be the same
Ability to spot opportunities, threats and trends
Seeing how your profits change with increased sales can either be threat or an opportunity. If profit is stable or decreasing this is a threat to the livelihood of your business. But if profits are increasing then it’s an opportunity to invest in your business to increase those sales even more.
Understanding your bookkeeping numbers will allow you to assess what impact of trying new things, new products and new ideas on a larger scale. For example what impact would buying 1,000 enamel pins could have on your business if you only sell a quarter at $19.95, what about half the pins? What if you decided to give them away as freebies with orders over $100 – how long would it take to give them away and what is the bottom line profit impact on your business. A deep dive analysis of your bookkeeping would help you understand this and your tolerance to survive following this idea.
Trends across the change in sales volume through a year can help you plan for the quieter months including saving up some of those pre-Christmas profits so you know you can pay your bills in January and April. You’ll also know that these are good times to explore the ideas you’ve been itching to try or source new suppliers. Knowing when there’s are less orders might even help you choose when to go on holiday.
Cash flow management
Understanding both what money is flowing into and out of your business and what money is expected to flow into and out of your business will help you to stop managing your business based on the cash in the bank.
Being able to track changes over your bank balance is important, but know exactly where that cash went and came from is the key to understanding those changes.
Information on how the different aspects or products within your business are performing
- Do you know which of your products/lines sell most consistently?
- Do you know which of your products/lines make you the most profit per unit?
Yep, you may have developed a way to track these outside bookkeeping but they can also be done inside your bookkeeping.
- Do you know how much profit you made at markets – specifically the products you sold at markets compared to the cost of attending markets? Quickly having this information at your finger tips can help you make a decision if a last minute spot comes up at a market.
- What about your other sales channels? Wholesale. On Etsy. Your own website. Consignment. Understanding the ratio of where you generate sales is essential information to be able to grow the most profitable parts of your business and know where to focus your energy, time and attention.
Forecasting
You need to know where you are coming from to know how to get to where you want to go. If you aren’t turning over a profit yet, you need to look at, are you continually investing in the business? Or is the business investing in the business by increasing inventory or supplies?
If I’ve convinced you of the benefits of bookkeeping for your business but you aren’t sure where to start then let’s book into for a bookkeeping system set-up or bookkeeping review session from $75 to $100. Check out my packages and prices at bit.ly/bookwryghtaccounts or email me at wryghtaccts@gmail.com
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