What separates a resilient business from one that's susceptible to failure? Often it's a matter of establishing bookkeeping best practices that provide the data and financial insights you need to make informed decisions and weather an unexpected setback. Let's take a look.
Watch Your Cash Flow
Why do businesses fail? Because their expenses exceed their revenue. That's as elementary as business finance gets. Taking in less money than you spend is just not sustainable over the long term — or, in drastic cases like the coronavirus pandemic, even in the short term.
So the first order of business resilience is to set up your bookkeeping system so that you can always check your cash flow at a glance, in real time. You have to make sure you have enough money to pay your fixed costs and ongoing bills, even if revenue falls short of projections.
How can you use financial projections to protect your business? A 13-week cash flow forecast, updated weekly, is an essential component of a prudent bookkeeping plan. At many businesses, both revenue and expenses can fluctuate, so it's vital that you understand your debt obligations within the context of actual cash flow.
When you come right down to it, business finance is a math problem. Only by keeping your books up to date — including conducting a monthly close to identify any errors or discrepancies — can you be sure that the numbers you're plugging into that math problem are accurate.
Cut to the Core
Another benefit of monitoring cash flow and updating your 13-week forecast every week is that you become more aware of where your money actually goes. And that makes you more disciplined about cutting unnecessary expenses. If you keep paying a monthly subscription fee for that business publication that you never have time to read, for example, why not just cancel the sub? Every dollar that you can add to revenue, or subtract from expenses, can really help when times are tough.
And when those tough times hit, you will have already established a mindset for making contingency plans to protect core business functions while also making strategic cuts to stay afloat. You don't want to wait for a crisis before taking a close look at all of your expenses. Make it a part of your regular bookkeeping procedures.
Be Ready to Operate During a Disaster
Business setbacks or disruptions can take many forms, from localized weather-related disasters like hurricanes, floods or wildfires to shortages and supply chain interruptions, including those caused by ransomware attacks.
You need to be ready for anything. (Yes, including global pandemics.) That means creating a continuity plan in advance. And that plan should include an agile approach that enables you and your team to work remotely, if necessary, without being tied to an office or other fixed location. All of your key systems need to be accessible online as well — including your bookkeeping. If you're not already using the cloud, you need to start. Today.
Cross training and thoroughly documenting processes and procedures is another essential part of disaster preparedness. That way, if a key team member is unavailable to perform their duties, someone else can pick up the slack. It's pretty simple: If you want to keep the cash flowing, you've got to keep your business up and running. (A secondary benefit of cross training and providing a built-in backup for every system, including bookkeeping: That keeps any one person from having sole access to the books — a critical security feature.)
Have a Plan for Getting Money Fast
Getting a business loan can be a complicated, time-consuming process. The more research and legwork you do in advance, the better off you'll be if you wind up in a financial pinch. Identify potential loan options now, before you need them. Which banks or lending institutions offer lines of credit? Establishing that credit today could be a lifesaver tomorrow.
Having the opportunity to borrow money quickly is another reason to keep your books accurate and up to date. When the time comes to complete paperwork for a loan, you don't want any delays or inconsistencies. Documentation you'll be expected to provide your banker includes a current P&L statement, a balance sheet, a cash flow statement, tax returns and possibly even an updated business plan.
Stay in Touch with People Who Are Important to Your Business
Like that banker, for instance. If you worked with your banker on a loan to start your business but haven't talked to them since, that could be a problem. Are you sure the particular banker you worked with is still at that bank? If you suddenly need a loan to overcome a setback, or to take advantage of an unexpected opportunity, you don't want to find that "your" bank now considers you a stranger.
Maintaining your network of contacts, and simply staying in touch with people, is a vital part of building a resilient business. And that doesn't apply only to those on the financial end of things. You need to build good relationships with suppliers, vendors, customers, your local business and political community, and any outsourced professional support that you depend on, including marketers, lawyers, CPAs — and, yes, bookkeepers.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.
Managing Director Chris Pentrack, Supporting Strategies | Pittsburgh, provides bookkeeping and controller services to growing businesses.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
Supporting Strategies is not a CPA firm.