Are you reactive? Here’s a better way to be ready for the future.
A potential client reached out to me. They wanted to expand, and they were going to apply for a loan. They wanted to make sure their books were in order, and that their financial statements were up to date before they applied for the loan, so they asked me to take a look.
Unfortunately, as soon as I opened their QuickBooks Online file and pulled up their financial statements, I could see there was trouble. Their financials weren’t up to date, and they weren’t anywhere close to being accurate.
In these situations, I usually advise clients that a clean-up of their records needs to be performed. The problem is a clean-up can take two weeks or it could take two months or longer depending on what the issues are and how long the issues have been going on.
The potential client was frustrated and disappointed because they had to put their plans on hold. There was no way they were going to get the loan with the state their financials were in.
Being reactive costs money.
Not only did the client have to pay for a clean-up, but they had to wait to apply for the funding they needed to expand their business. Their expansion was delayed, costing more money. It doesn’t pay to have messy books.
Here are five ways to be proactive in managing your finances rather than reactive.
Set measurable goals. Have you ever “set it and forgotten it”? I know I have. I get all excited setting my goals for the quarter and then I put them away and the end of the quarter comes with no progress. Instead, write down your goals, and for each goal (don’t have more than a couple per quarter), write down the actions you (or your team) will take to meet the goal. Determine who will be responsible for each action step and the due date it needs to be accomplished. Have regular progress check meetings to check in.
Keep your books up to date. You can’t have accurate financials with incomplete or inaccurate bookkeeping. Spend time each week recording transactions so you don’t get behind. At the end of every month, reconcile your bank and credit card accounts to make sure you haven’t missed any transactions. If you use software like QuickBooks Online, you can use the built-in reconciliation feature to reconcile your accounts.
Review financial statements. Review your balance sheet, profit & loss, and statement of cash flows monthly. Each of these statements gives you information about the health of your business. The balance sheet shows the liquidity of your business. The profit & loss shows if your business is profitable, and your statement of cash flows shows you how cash is flowing into and out of your business. Many business owners focus on the profit & loss, but each of these statements is important in determining if you have a healthy business.
Monitor key performance indicators (KPIs). Determine the KPIs that are important to your business. Depending on your business, the KPIs you choose to monitor could vary. If you have an online store, you might look at average order value or conversion rate. The important thing here is to select the KPIs you’ll monitor and look at them every month so you can catch any issues right away.
Establish an emergency fund. Putting money away in a savings account is important for lean times when you need a little extra cash to fall back on. Maintaining an emergency fund can be the difference between surviving a downturn in your business and going out of business due to a lack of cash.
Taking a proactive approach to managing your finances will give you the data you need when you need it so you have a growing and successful business that stands the test of time.
I’d love to hear from you. Let me know if you found this information useful and what you’d like to see from me in the future.
