Nothing is interesting if you’re not interested. – Helen Macinnes
And, about the last thing most business owners are interested in is spending some quality time with their accounting records. In fact, I often joke that all business owners have ADD. They have so many hats to wear that reviewing their books often loses out to selling their products, producing their products, delivering their products and collecting from their customers.
But the successful business owner truly understands that accounting is the language of business and that reviewing their accounting reports on a regular basis is a major part of increasing their business profits, sales and cash flow.
Business is NOT a game of numbers; but a game of human behavior – in particular the business owner’s behavior. Good accounting data gives us a scorecard to measure our behavior and its effects. K.C. Truby (the Lonesome Cowboy and marketing expert) calls it the Five Minute Books. I call it the Daily Scorecard. But, we both agree that it is a vital tool to achieving success.
The following are the five essential reports and how to use them.
1. A daily profit and loss. By reviewing your profits, you will identify what is working for you and what isn’t. Our goal is to focus our limited resources and time on those efforts that we enjoy and have the biggest impact on our business success. Comparing results from month to month helps us identify trends and react quickly.
2. Sales reports by product or customer. Sales reports by customer with related costs and profits help us to identify our most profitable customers and products. Again, our goal is to concentrate most of our efforts on our most profitable customers and products. This analysis often leads us to learn that some of our customers that are “not fun” are also not profitable. Bad customers should be sent to your worst competitor as your gift. I’m just kidding, you never want to turn away business but you may want to reconsider how much time you spend with these customers.
3. Accounts Receivable. The most common cause of cash flow problems is a failure to keep collections under control. A daily review prevents surprises and allows you an improved chance of collection. Simply put – the older an invoice is, the less likely you are to collect it.
4. Accounts Payable. Too often a business owner looks at their bank account and sees that they have enough cash to buy that new car or piece of equipment. What they don’t know is that they owe their vendors more than what they have in the bank. If business owners know how much cash they need in the next thirty days they will more often than not find away to meet their obligation. A daily review of your obligations will help you sleep at night, as well as plan for the timely repayment of your vendors and creditors.
5. Cash on Hand. Profit can be an opinion but cash is a fact. Each day you must know exactly how much you have in the bank. This one step alone will drive you toward a bigger bank account.
Almost ALL things we don’t like in our business we caused ourselves. Our goal is to use good numbers DAILY to improve your behavior. Often within weeks you will see a major improvement in profits and cash flow.