Is It Normal For Your Books To Be A Mess?

Business owners come to us every couple of weeks with statements like this:

“QuickBooks has all my transactions from my bank feed, but none of them are reconciled.”

“I just use a spreadsheet.”

“I send invoices from a word document.”

Or – “All the numbers are in my head.”

You start out feeling confident about managing your books. You buy QuickBooks or another program believing it will be the solution to any bookkeeping problems you’ll encounter. However, you find that your software program creates more problems than it solves because it’s complicated to use.

Then, one day, you realize you’re months behind and you have to re-create the wheel every time to figure out where you are financially. And unless you’ve been in a situation where someone was effectively managing your accounting or bookkeeping before, this system of scrambling to catch up with your bookkeeping seems completely normal to you. You figure it’s just part of running a small business.

If you’re a business owner who can relate, know that this scenario is very common. Here’s why:

You’re not a trained accountant.

Many of our clients are iconic local brands that went into business because they were passionate about what they do, and they believe that others would benefit from what they have to offer as well. They didn’t go into business because they were passionate about bookkeeping and accounting. Even though these are key tasks that are essential to running a successful business, they’re often dealt with begrudgingly.Plus, there’s a reason CPAs have to work so hard for the letters after their names. Managing the monthly financial operations seems like it should be intuitive, but it’s complex. It takes expertise to manage bookkeeping, pay bills, and handle taxes the right way.

Doing your books doesn’t (immediately) make you money.

Managing all of the financial aspects of a business is time-consuming, to say the least. Initially, there’s not a lot of reward to spending the time that’s necessary to straighten it all out when you could be using that time on marketing, strategy, or development tasks.Plus, bookkeeping and accounting are often parked on the back burner because they’re just not fun for many people. In fact, a study by the SCORE Association revealed that 40% of small business owners say handling bookkeeping and taxes are the worst part of owning a business.

Your biggest concern is probably the IRS slapping your hand or putting you in jail.

This is certainly a valid concern for any business owner. However, there’s a difference between financial accounting and management accounting.

Management accounting focuses on assisting management in the operation of the company by analyzing costs, creating budgets, or running spending reports, for example.

Financial accounting has more of an external focus on the financial statements that are distributed to parties outside of the business, such as the IRS, stockholders, or lenders.While the risk of messing up financial accounting may be more visible, the risks of poorly executed management accounting can be just as harmful.

That said, let’s take a look at the risks of faulty financial management, and the benefits of having your books straightened out and managed proactively.

What Messy Books Might Cost You

We at Two Roads aren’t into finger wagging. We’re much more pat-on-the-back type of people. However, we believe it’s a disservice if we don’t help business owners realize what messy books or less-than-airtight bookkeeping and accounting procedures could be costing them.

Statistics gathered from the U.S. Small Business Administration show that about half of all new small businesses launched in the U.S. fail within the first five years. The biggest cause of small business failure is poor financial management.

Following a DIY method of bookkeeping or failing to reconcile your business’s books with your business bank statement every month are two of the most common ways that financial mismanagement can bring a small business down.

Some of the more insidious financial mistakes can be sneaky. For example, “extra” expenses like small purchases, interest charges, and hidden fees can add up fast. Failing to keep track of these seemingly insignificant expenses can result in a big difference between the money you think you have and the money that’s actually available to your business.

In addition, incomplete or messy books fail to provide an accurate record of the business expenses that you can claim on your annual tax return. This oversight could mean missing out on many deductions and paying more than you have to.

There are countless ways that messy books can eat away at your business’s bottom line.

Accounting and bookkeeping can be complicated and technical, so it’s a smart business move to hire a trained bookkeeper or accountant, even on a part-time or contract basis. The investment will usually come back to you many times over given the amount of time and (potentially) money that will be saved in the process.

What Better Books Will Save You

The good news is that when your books are cleaned up and being professionally monitored on a consistent basis, the benefits become crystal clear pretty quickly. Aside from avoiding costly mistakes, business owners typically feel a great sense of relief when they put their books in expert hands.

For example, we recently wrote about Colleen Cruze Bhatti and her business, Cruze Farm. A well-known Knoxville brand that’s gaining national attention, Cruze Farm has grown and is successful by all accounts. But Colleen felt overwhelmed by all the paperwork of bookkeeping and accounting, and wasn’t clear about how best to grow the business before turning to Two Roads.

She says, “Before, we honestly weren’t sure if we were making money, losing money, or breaking even. It’s great to be able to have someone else looking and observing, who is able to tell us, ‘Yes, this works,’ or ‘No, this doesn’t work,’ or ‘Keep doing that.’ It’s really helped us figure out where to focus the business.”

Helping clients like Cruze Farm stay focused on growing their businesses is what we love to do most at Two Roads. We do so by using the right software, by diligently keeping track of where all money is going, by staying on top of profit and loss reports and a running balance sheet, and by providing tight payroll solutions.

Outsourcing your bookkeeping and accounting gives you the confidence of knowing that your books are being done right, freeing you up to focus on the growth of your business.

At Two Roads, we have the privilege of doing bookkeeping for hundreds of small businesses who are leaders in their industry. We’d love to talk with you about your vision for your business and how we can help you achieve that. Learn more about us at tworoadsco.com, call us at (865) 212-0063, or schedule a call online.

 

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