Small Business Owners and the Financial Records Payoff

Just the other day I had a discussion with a local small business owner on where his money went.  His financials showed he made a profit but he did not have it in his bank account.  As we talked, I asked questions about his record keeping.  He pulled out his checkbook and indicated that was his method of keeping records.  I asked about balance sheets, cash flow and profit and loss and he was hooked to learn more.

Unfortunately, that conversation is not a rarity with small business owners.  Sure when the business started it was easy to track it in the checkbook. But as the business grew, employees hired and increased revenue, a more sophisticated method is usually required in order to better financially manage the business.

Many people feel that ignorance is bliss when it comes to accounting.  If it is not showing then it is not happening.  If only that was true. Many small business owners went into business to sell and make money not do the books.

A tip for business owners is to budget some time each week to go over the financials.  This weekly review will eliminate many of the “bite you in the butt” surprises that often then become a big deal very quickly. This review is part of running the business like a business - not a personal hobby. Owners are encouraged to not enjoy ignorance on their business’s financials. 

Tip two is to keep your growth in check and look for it on the financials.  Nothing eats cash faster than uncontrolled growth of a business. Often, expenses are paid before the sale is realized so that creates a drain on cash. So grow only at the pace the business can afford. 

Tip three is to know your numbers – what does it cost to operate the business daily, the costs of producing the items the business sells, or knowing the utilities.  These numbers are examples of what needs to be known by a business owner to help plan for adequate cash flow. The old saying of “if you can’t measure it, you can’t manage it” is very true here.  Expenses and cash flow are examples of trackable items that can be measured and managed.  In fact, knowing these types of numbers will help the business owner make more informed decisions on everything from growth, hiring, bills etc.

Tip four – knowing your numbers sets the business on the path to success. If a business owner is in control of the finances (numbers) then the business is on a profitable journey.  By managing the finances, the owner knows when to ask for additional funding and has the power to support the request. This knowledge allows the owner to answer the two biggest questions a lender has – 1) are you qualified to do what you say you can do? And 2) are you capable of managing the business?  Imagine the relief of being able to say yes to these questions and having the knowledge to back it up.

Tip five – if managing the business by the numbers is too much to grasp, then enlist the aid of a professional to assist.  Call a bookkeeper or CPA to help or the local Small Business Technology Development Center.  Both are sources of assistance to help understand the financials of the business.

Hopefully, interest is generated to start looking at the business’s financials now.  If questions arise, feel free to contact Richard Proffer, regional business development specialist, at the University of Missouri Cape Girardeau County Extension office at 573-243-3581 to start the conversation.