Many small businesses simply do not have good habits in place when it comes to their finances. And it’s easy to understand why. Running a business is time consuming, and it’s hard to keep customers happy, grow your business, and make sure the bills are paid and checkbook is balanced—which is why you need a good bookkeeper, btw. ;)
Unfortunately, understandable or not, the reality is that bad money habits can create big money problems.
The good news, however, is that you don’t have to be a wizard at financial statement analysis. You just have to be vigilant. Poor wealth health can be avoided by monitoring a few key financial areas of your business. Here are four simple ways to make sure that you’re in tip-top financial shape.
1. Keep an eye on your cash on hand.
Monitoring cash balances is a simple process. It just requires a regular glance at your company’s balance sheet. Bank accounts appear at the top of this report, and you should frequently compare account balances over time.
Determining whether you have enough cash on hand involves some quick math. Cash, plus the receivables you expect will become cash within a month, should exceed the near-term debts you owe—a.k.a. “current liabilities”—on the balance sheet. Current liabilities include credit card balances, payroll taxes, sales tax, and other upcoming amounts you expect to pay.
2. Watch how much you spend.
A significant number of business errors are the result of not knowing where the money is going. Money should be spent for things that simplify your business and make you more productive. The income statement—also called the profit and loss statement—will help you evaluate your spending habits.
Your income statement will give you the percentages of each expense category relative to revenue. By comparing this report over multiple periods, you’ll discover how your expenditures may have changed as percentages of revenue.
When business is going well, you’ll want to keep spending the same percentages of revenue for the expense categories that are variable. With fixed expenses, such as rent and telephone, what will hopefully be an increase in sales will cause the percentages of revenue for these categories to favorably decline.
3. Increase your income.
One of the best ways to stay in fighting financial shape is to make more money. Obviously that’s easier said than done, but here are a few things you can do to keep increasing the bottom line:
- spend your time on tasks that make you the most money
- increase your rates
- consider offering a new line of services
- partner with a business in a related industry, and become an affiliate marketer of their services
Certainly there are other ways (we mentioned a few here), but you’re sharp, so get creative! There are plenty of opportunities out there to make more money if you put your mind to it.
Whatever you do, the point is this: making more $$ will keep your pockets healthier.
4. Let a professional take care of your books while you focus on your business.
This may sound self-serving, but it’s true. All of us are only good at the things we’re good at. The same is true for us at JR Bookeeping: we trust professionals to do the things that we don’t so we can keep doing what we do best—which is manage your finances.
In your case, managing your finances is probably not what you do best, which is why it makes so much sense to have someone do it for you.
Think of it like this: one of the best ways to stay healthy is to visit the doctor regularly. In the same way, the best way to keep your books healthy is to leave the number-crunching to the professionals.
And again, that’s what we do best. No matter what your needs are—whether it’s bookkeeping, payroll, or help with your accounting—we have a plan that’s right for you and perfect for your budget. Best of all, you get 1 month free when you sign up today.