Some months ago we wrote in this space about the art of bookkeeping, offering some tips on how businesses might make the practice easier to do. We didn’t go into why it’s important to do, and we’re going to rectify that now with 4 reasons why it’s important, since we gave 4 tips the first time around.
1. You need to know if you have enough money to do what you need to do. Forget having enough money to go on vacation for the moment. If you don’t have enough money to cover your expenses from month to month, your business will be in trouble. Unfortunately, none of us is the federal government, which means we can only spend whatever money we happen to have. Without budgeting, you might find yourself buying something, only to realize that you needed that money for something else.
2. You need to know where the bulk of your money is coming from so you know where to concentrate your efforts. If most of your money is coming from certain products or services, it would be smarter to try to get more clients for those things and put other things on hold for awhile. This of course touches upon the Pareto Principle, and yet it seems to be true for so many things.
3. You need to know where the bulk of your money is going. Tracking expenses is never fun, but it’s the only way you know if you’re spending too much money on the wrong things, or if something might be amiss. I had a client who was spending a lot of money on a supply item that wasn’t crucial to the business. He found that his employees were ordering this item and either using it for purposes it wasn’t designed for or taking it home for their personal use. Yearly it was a lot of money going out the door that, once it was pointed out to him, was an immediate savings to his company once he shut it down.
4. You need to know where your business stands financially. You can’t plan for the future if you don’t know where you are now. If you need special certifications that have to be paid for, you need to plan for that. If you need to pay quarterly taxes you might need to plan for that. If you have employees you pay weekly or bi-weekly, you need to plan for that. Knowledge is power and safety, and if tools or people like accountants are available for you, it’s smart to use them to your advantage.
