With sound small business bookkeeping practices in place, you know exactly how money flows in your operation. For that reason, you don’t experience financial crises that could stall out your operation. Conversely, missing tax deadlines, underpaying employees, and letting customers pay their bills at leisure is a recipe for failure.
That’s why in this post we’ll take you through steps to help increase your business’s profits. You’ll be able to streamline your small business bookkeeping process to save money and grow your business.
Is bookkeeping different from accounting?
Although bookkeeping is an accounting process, they are different. Bookkeeping makes sure company and bank records are correct, while accounting involves examining the bookkeeping records to help the business financially thrive.
How to increase your profits through small business bookkeeping
By implementing the following steps, you’ll see improvements in your business’s profitability in very little time.
In fact, you may position your business to be able to afford monthly loan payments. With funding, you could upgrade equipment or add additional storage space for inventory. And don’t forget to take your staff members out for dinner to reward them for their hard work.
Hire an accountant and a bookkeeper
To the casual eye, hiring more people, even part-time, doesn’t seem reasonable until you take a closer look. Both accountants and bookkeepers contribute to your business’s success.
Accountants are trained professionals who are financial planners, tax consultants, and experts at interpreting financial statements.
1. Decide whether you need an accountant and a bookkeeper once a month, every 6 months, or once a year.
2. Get referrals from other business owners who are satisfied with their accountants and bookkeepers.
3. Narrow down your choice of candidates to two accountants and two bookkeepers. Then, meet with each of them and give them a bird’s eye view of your business. Ask them what they specialize in and how they can help increase business profits.
4. Once you hire the right people, put them to work right away. They can work with you to improve cash flow, restructure your small business bookkeeping system, or help you revise financial goals. They know how to grow business profits and specialize in financial forecasting and looking for ways to pay less tax.
Identify money drains
Are you dining with clients several times a week? Maybe you overspend when buying raw materials or run errands each day instead of once a week.
1. If you have a small business bookkeeping system, print out a copy of your transactions. If you have an accountant, ask him to give you this information. Your objective is to compare purchases with the budgeted amounts you set up at the beginning of your accounting cycle.
If you can do this whole process with your accountant, it will be easier and way more effective.
2. Red flag any expenditures that seem exorbitant or where you habitually overspend.
3. Make adjustments on the spot to curtail spending. In the examples above, you can schedule conference calls with clients, shop pricing for supplies, and create a weekly or monthly shopping list.
4. By staying on top of spending in every area of your operation, you’ll save money.
Your mindset can determine how well your business performs in the marketplace. To that end, make sure you pursue these activities:
1. Schedule a meeting with your accountant to go over your financial statements to monitor your business’s overall performance. Can you diversify your product line to reach a broader segment of the market and generate more revenue?
Regularly obtain feedback from customers and employees. Then, modify or create a product or service that helps solve a problem. Your objective is to avoid falling into business as usual routines.
2. Track your net profit every week. Your goal is to make sure your business makes a steady profit. If it isn’t, have an accountant perform an accounting audit to target deficiencies in how you manage money or your small business bookkeeping processes. When you make a steady profit, you can review profit percentages quarterly.
3. Develop new strategies and redefine your financial business plan to stay profitable. In addition to having an accountant help manage cash flow, make sure you have plenty of working capital, and set goals to make a profit. Likewise, don’t rule out borrowing money as an option to accommodate the changing needs of your business.
Tackle obvious stumbling blocks
Sometimes apparent financial problems are pushed to the side. Examples include dealing with bad debts, suppliers who overprice, advertising that doesn’t work, and underselling your product or service.
1. Review your debt collection policy if you have one; if not, create one. The problem with bad debts is that they directly reduce your profit margin. When the same customers pay late or not at all, there’s a good chance they never will.
What’s the solution?
Move those customers to a cash-only list and strictly enforce your collection policy. Only give cash discounts to customers who pay on time. For debts you can’t collect, your accountant can advise how to write off those balances as an expense.
2. It’s always possible to negotiate a better deal with suppliers. You may be able to get a better price across the board from one supplier for all your materials. Increase your deposits with one or more suppliers in exchange for a larger discount.
3. By tracking your advertising costs through small business bookkeeping and your accountant’s input, you can determine your rate of return for each advertising dollar. If you don’t recognize a profit, then you can spend the money elsewhere or save it.
4. Small business bookkeeping includes all the data you need to review your pricing system. Are you charging enough to cover costs and overhead?
If you haven’t increased your pricing for quite a while, make sure you aren’t underpricing or overpricing so you stay competitive.
You can increase profits!
Without someone managing your finances, your finances manage you. Don’t let that happen! Small business bookkeeping is one of the most important aspects of running your business.
As you can see, the above steps aren’t hard to put into practice.
You can increase profits by making small or large tweaks to optimize how your business’s money flows.