Benefits to Good Financial Reporting
I know, I know….what is the most boring part of running a business? Tracking down every last dollar and accounting for it, right? This is especially true because at first glance, it seems so easy. A customer buys something for $100 - that’s revenue, and you had to pay $40 for the materials to make it (cost of good sold), $20 to the people who work for you, $20 in rent, utilities, insurance and other necessities, leaving you with a profit of $20 in your pocket. Simple and straightforward, you simply need to track dollars in and dollars out.
However, enter accounts receivable and payable, customer discounts and short pays, factoring agreements, vendor terms and the whole thing can quickly become a nightmare. One off transactions, lingering questions, and never enough time to find the right answers quickly put daily accounting on the back burner. Customers and employees take up so much of your day, it’s easy to push off things don’t seem like a fire that needs to be put out.
Why even bother? Other than the fact that your tax accountant will eventually need the information, there are a multitude of reasons why you simply can’t ignore proper financial reporting.
You Will Need the Money
Even if you don’t right now, if you grow as your plans suggest, you will likely need to raise capital or borrow funds in the future. The number one way of giving an investor or lender a sense of comfort is by being able to present quality, accurate financial statements. Even if you haven’t consistently turned a profit yet, they can still look at benchmarks, identify trends and find bright spots in what your company has to offer. What if you want to sell one day? You will never be able to maximize your value without showing that you are competent and organized, and that often shows through quality bookkeeping.
You Will Find the Opportunities
You may have the vague feeling that you could be doing better at managing expenses in one area of your business. It may seem, anecdotally, like one product line is doing better than another, but can you prove it? By having the numbers in front of you, in black and white, it can help cement what your future opportunities are- and what they are not! Working from data, rather than feelings, is always the way to go, and having the data is the starting point.
If someone contacts you with a project or opportunity that would be a stretch for your business, can you quickly and easily do the research needed to jump at it? Does the stress of filing taxes, providing statements to lenders and figuring out costs cloud your ability to think critically about other areas of your business? Maybe it’s time to get on top of it once and for all.
What to do Now
Where to start though with all the back data? Be realistic about how much can be done and how quickly. Is there someone who does this work for you, or is there someone who could? Can you commit to an hour a day working toward a goal?
Assess what needs to be done
Commit reasonable time to moving toward your end goal
Find resources to help you answer questions
Set a routine you can stick with to stay up to date
Once you have your data up to date, you can begin looking at scenarios, running analyses and more. Consider asking for help in areas that seem confusing or where you are unsure how to evaluate a choice. The more you learn, the more comfortable you will feel at the helm of the financial ship. The first step is getting on the water! Good luck.
