Happy New Year!!
Did you make any New Year Resolutions? Exercise more? Eat healthier? Spend more time with the kids? How about New Year Resolutions related to your business? Will you make a commitment to improve your business in 2011? Can I offer you a challenge for 2011:
Resolve to keep accurate, timely financial records.
In my past experience working with business owners, I find that one of the biggest problems in operating a business is keeping accurate financial records. Many small business owners I have worked with do not really know how profitable their business really is. They judge profitability by their bank accounts more than their financial reports. This can lead to false assumptions, poor planning, poor performance, and decreased business value.
“It doesn’t matter that my financial records aren’t perfect, so long as I am making money”
“I have more money in my account now than I did at this time last year”
Your financial records are the key to revealing the profitability of your business and to increasing the value of your business. Profitability needs to be easily determined.
As the owner, you should be very aware of the profitability of your business. Some business owners only hire a tax accountant to just “compile” their financial data in order to complete the tax return. Instead, you should work closely with your accountant to determine true profitability as part of your tax preparation. Profitability is the basis for determining the value of your business. The more believable your financial records are, the more a buyer/bank will pay/lend for the business value.
When you go to sell your business, re-finance your business, extend your line-of-credit, revise your business plan, or make capital improvements, you will rely on your past financial records for future success.
- Monitor and control inventory
- Track margins
- Track Cost of Goods Sold (COGS)
- Eliminate personal expenses from your business records.
- Track accounts payable and accounts receivable
- Produce and review monthly profit & loss Statements
- Review your balance sheet
- Properly record all income
- Understand the differences between cash and accrual accounting methods
Need help? Hire a bookkeeper to help you set up financial procedures and systems. Take a class in Quickbooks (see SCORE information below).
I cannot stress enough how important good financial records are. They hold the key to building the value of your business.
Have a Happy, Successful 2011!!
O.J. Robinson of CenterPoint has provided valuation, consulting, and brokerage services to over 45 businesses in New Hampshire, Massachusetts, and Vermont. He has owned and operated businesses in New Hampshire and has the experience and expertise to assist with the sale or improvement of your business. firstname.lastname@example.org