Today’s post will explore the business accounting cycle. Are you missing a step in a successful cycle for your business?
Step 1: Identify, Collect, Analyze
This step is all about the in and out of cash flow in your business.
- Take the time to identify what items need to be tracked. Easiest way to do this is by separating personal from business. Set-up separate bank accounts and dedicate one credit card for business.
- Consider how you will capture and collect that info. We have written many articles about keeping receipts and going paperless. Success in deciding which to choose is all about looking in the mirror and figuring out what works best for YOU. Or outsource it all and free yourself from it all. For more info on “Paper vs. Scanning”, see my post here.
- Finally: the analyzing stage will lead you to the next step
The ADI Accounting Team recommends the following tools for this step.
Which option works best for you?
Are you good at keeping receipts but lousy at doing anything with them? Shoeboxed.com sends you envelopes that you can fill and send to the scanning fairies. If you use Gmail, this is a great tool to automate pulling the receipts. This still requires some hand holding by you to access the technology and add some deets on the scan. You can even connect it to your accounting tool and use it to import that transaction info.
Do you really keep all your receipts? A tool that will help you capture all your receipts, auto pulls the information, and offers you a way to capture them digitally may work best for you. Hubdoc will auto pull statements from most banks and utilities. It’s our favorite app that allows you to take a quick photo, upload the receipt, and then you can recycle that paper. There are multiple ways to get the data in the tool, and there’s a sweet connection with Xero and QBO to automate the data entry. Just like the first option, you still need to do some hand holding to guarantee accurate info.
Do you tend to get lost in the details? No, seriously, you totally shut down with all the receipts? One word – OUTSOURCE! Get a personal assistant that will come to your office and pull that info together for you once a month. Or make sure your outsourced accounting team has a document management plan and they will take care of sorting, scanning, and storage.
Step 2: Record Activity Using an Accounting Tool
If your business is generating less than $50k in gross revenue, then an Excel spreadsheet will work. Otherwise, pull on your big kid pants and go ahead and sign-up for that accounting tool. ADI recommends using either QBO or Xero. How you choose it depends on what works best for you:
- Visually – Stripped down clean and minimal or fully loaded and visually engaging?
- What apps are you using? This includes payment options as well.
- If you were using a tool before – do you want to start fresh or upgrade?
- Are you using inventory or classes/departments?
- How many users will access the tool?
If you are finding that you need clarity around this, schedule a paid bookkeeping evaluation that includes an accounting conservation and written recommendation report based on the pain points we discussed.
Step 3: Reconcile and Verify
Even if you are using a tool that is automating your recordkeeping, it isn’t perfect. ADI Team requires that all bank accounts are reconciled and verified every month, and you should too.
Step 4: Review and Reports
Look at your data. This is perhaps the most simple step, and yet, most business owners do not make the time for reviewing their financial data. They spend their time focused on cash flow, or the lack of, rather than keeping costs in check and finding the average in the activity. Without review, however, it’s nearly impossible to maximize any cash flow. Here are a few things to review:
- Do you know your monthly burn rate? That is the average monthly amount needed to run your business. The goal would be to have three months of this average in your business “rainy day fund’. Plus, knowing this gives you bare minimum for revenue. Don’t forget to include your own salary in this number, or the business will fail to generate enough to adequately support you.
- Are you making a profit or running at a loss? Of course, if you are running at a loss you will be financing it, which means your debt will be increasing each period.
- Who owes you money and is there a need for collections?
- Can you reduce any of your expenses? AND do you have any once a year expenses coming up so you can plan cash flow accordingly?
Step 5: Strategize and Goal Setting
Now that you know your numbers, it’s time to set some goals and create a strategy to increase revenues, decrease costs, increase your compensation, decrease debt, or create a rainy day fund. ADI Team recommends working with a business coach if you have never looked at your business in this fashion.
Step 6: Tax Reporting
Of course this means filing your business and personal income taxes. Successful businesses also incorporate planning and strategy sessions with their tax professionals at least once a year if not twice. Taking the time to know where you are, what that equates in taxes, and perhaps, come up with a tax savings solution is what this step is really about.
Step 7: Plan
If you have followed all the steps above, you already have part of a plan and strategy. Now what about a plan for next year, three years from now, even five years? Again, a business coach is great at pulling this together if you need some assistance. Plans work best when you have doable steps, accountability, and the willingness to be flexible when possibilities and change show up.
Through a rinse & repeat cycle, you’ll find the rhythm that works for your business. Call in support when you need it, at a minimum a business coach and tax professional that will both help you be proactive with your business planning. Outsourcing can be an option as well and of course, the ADI Accounting Team is here and ready to have a conversation with you on how we might be a good fit for your business needs. If you are ready, head over to the consultation page to give us some basic info and schedule a call.
Want to use this article in your ezine, blog or site? No problem! As long as you leave all links active, do not edit the article in any way, and include the following, feel free to reprint.
About the Author
Connie Vanderzanden is the CEO of the ADI Accounting Team: focusing on outsourced accounting services for small legal firms and speciality medical offices. Connie’s knowledge spans 30 years of accounting and bookkeeping experience, a variety of industry knowledge, and her own real-life business growth journey since 2001. She provides her readers (and clients!) powerful insights on money related topics that include maximizing cash flow, increasing savings, and obtaining more profit in their businesses. If you’d like to “Cover Your Financial Butt”, feel free to grab a free copy right here!