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How Better Bookkeeping Makes Better Managers

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How Better Bookkeeping Makes Better Managers

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At small- and medium-sized businesses, business owners have many roles. One role is business manager. As business manager, many approach bookkeeping with dread, particularly during tax season. They want to get the process over with as quickly as possible so they can get back to the important business of managing the company.

What many managers fail to realize is that a trained bookkeeping professional can provide information that is not only vital to satisfying the company's tax obligations, but also to managing the company more effectively. The key is to know what to look for.

Getting Ahead of the Game
Imagine coaching a basketball team without ever looking at the scoreboard. You'd have a hard time knowing whether you were winning or losing, let alone what steps you could take to make the team better. That's essentially what you're doing when you try to manage a business with no understanding of basic bookkeeping principles. You might think your team is playing well, only to learn after the final buzzer that you lost by 20 points.

Once you see bookkeeping for what it is — a way to analyze vital data to make informed decisions — you can become a much more effective manager.

My colleague Ann Willett-Thomas of Supporting Strategies | Santa Monica presented a classic example of a manager not knowing the financial score in this post. Many small-business owners have a hard time grasping the difference between P&L and cash flow, along with other accounting and bookkeeping concepts. That's not their area of expertise. In effect, they can't tell whether they're winning or losing even when they are looking at the scoreboard.

That's why outsourced bookkeeping services are so important, especially for startups and small- and medium-sized businesses.

The Complete Box Score
The score isn't the only important statistic a basketball coach needs to be aware of. Your team might be ahead by two points at halftime, but if your three best players have already fouled out, you'll have a hard time winning that game.

Similarly, the bottom line isn't the only line for a small business. The numbers that matter most can change over time. As Michael Oberther of Supporting Strategies | NYC - Midtown noted in this post, "Revenue is a critical goal in the very early days of a new business, but revenue cannot become profit unless you become efficient."

This is particularly true at companies that work on a project-by-project basis, where accurate job costing is vital. For example, if you run a small construction firm, that $1 million project you just landed might sound like a big win. But if completing it will cost you $800,000, you'll have very little left for operations, which will likely lead you to an overall profit loss.

Two other items to pay attention to on your small business stat sheet, as John Gleason, Managing Director of Supporting Strategies | North Shore MA and Metrowest, reports here, are your income statement and your balance sheet. As John succinctly puts it, "Basically, your income statement tells you if you're making money or losing it — definitely something you want to be aware of."

The balance sheet, on the other hand, "will show you your business' liabilities, assets and capital on a specific date." In addition to knowing where you are right now, you also need to understand where you've been and where you're trying to go. That's why budgeting and forecasting are vital to your company's success, as Jim Rice, Managing Director of Supporting Strategies | Orlando and Rochester, notes here.

Finally, receiving your financials in a consistent, timely matter is vital to good decision-making. If you don't have closed books and detailed financials by the 15th of the following month, you need to consider an outsourced bookkeeping services provider.

Teamwork Takes More than a Team
If you're managing a small business, think of yourself as the head coach and your employees as your team. And just as a successful basketball team also relies on support from trainers, assistants and statisticians, your small business can benefit from outsourced services — especially outsourced bookkeeping services, as Andy Hale, Managing Director of Supporting Strategies | Dallas and Austin, writes here.

Andy notes that one risk of using amateur bookkeepers is "the cost of missed information." And that missed information could cost you more than a basketball game. It could cost you fines or overpayments during tax season — and eventually it could cost you your business.
Pete Denholm

Author:

Pete Denholm

Managing Director Pete Denholm, Supporting Strategies | Northeast Florida, provides bookkeeping and controller services to growing businesses.

Legal and Tax Disclaimer

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.