I’m sure you didn’t start your business with a goal of focusing on bookkeeping, and it’s probably a safe bet that you didn’t go to school for bookkeeping or accounting. Nonetheless, it’s crucial that you always have a grasp on where things stand for your company financially. Here are some of the things that as a business owner, you should always know about your books:
1. How much money you’re making
This seems like it should be too obvious to mention. But it’s absolutely critical that you know what your company’s revenues are. I’m sure you’ve heard it said that “cash is king”, and that’s true in any type of business. If you don’t have accurate records of your sales, or those records aren’t properly organized, it won’t be possible to have an understanding of your cash flow.
2. How much money you’re spending
This is the flip side of #1. Of course, to get a clear picture of your cash flow, you also need to track where those funds are going. This can be a bit trickier, since you’re probably spending in a lot of different areas, including payroll, supplies, services, etc., and through different methods of payment (checks, cash, credit cards, electronic funds transfers). So keeping accurate records of expenses is going to take some work to organize properly, in order for you to get a snapshot of what you’re spending at any time, and make budgetary adjustments appropriately.
3. Accounts receivable
In addition to being on top of how much money is currently coming in, as a business owner, you also need to be aware of what is going to be coming in: your receivables. It’s important to know how much money you can expect to receive in the coming weeks or months so that you can plan properly. You should also be aware of the age of those receivables, so you’re aware of customers who have fallen behind on their payments and may need a collection call, or even a change in terms if they’re not paying you as agreed.
4. Accounts payable
Just as you need to know what funds are due to come in, you should always be aware of what’s upcoming to be paid out. It’s crucial to your forecasting and planning to know what bills will need to be paid, and when they’re due.
If you’re the owner of a service business, this obviously isn’t for you. But if you sell goods, it’s essential to have a grasp on your current inventory levels. When your next big order arrives, you’ll need to know whether you’re ready to ship it today, and if not, how much product needs to be produced in order to fulfill the order. Don’t forget that inventory is also an asset, and is a part of a any assessment of your company’s financial health.