You’ve probably heard the expression, “Garbage In, Garbage Out.” This phrase, originally applied to computer hardware and software, also works for the financial side of your business. If you want to succeed, you’ll need to create a financial system that clears out the garbage and that gives you accurate and useful information to see how you are doing and so you know when to act on this information.
Here are five easy steps in creating a simple financial record keeping system: Capture, Check, Record, Review, and Act.
If it isn’t there, it doesn’t exist. As you start your business, get in the habit of capturing everything, so it becomes automatic. “Capture” is the most difficult, and the most important part of the process; it’s a matter of forming the habit of collecting information. Keep track of every amount you spend for your business and every amount you take in as sales. Don’t worry at this point about doing anything with the information. Just be sure everything you capture includes:
(a) A description of the item,
(b) The amount, and
(c) The date.
Every two weeks, spend an hour going through everything and checking it. Check to see that all the information you have is ready for recording.
Be sure you have included the date and amount, and enough detail on what the expense was for that you can record it accurately. Set up a specific time for an appointment with yourself at the end of alternate weeks (every other Friday, for example) to check everything. Don’t wait too long; the longer you wait to do this, the more difficult it will be to remember and collect information.
Recording means putting your financial information into useable form. After everything is checked, turn it over to your bookkeeper to record, or record it yourself. Do this monthly. Input the information into a spreadsheet or accounting software. You might also find that online software works for you, so you and your bookkeeper can both see the information and discuss it. Just be sure you get everything recorded each month, so you can review it.
After your financial information has been recorded each month, print out four reports:
For each report, include a comparison with the same report information from last month. Pay special attention to specific information within these reports.
In most cases, “ACT” can mean doing nothing, if everything looks all right.
In other cases, it might mean making a change. Create “trigger points” where the information compels you to act. Here are some suggested trigger points:
Even if you’re not familiar with financial systems, you should be able to set this one in motion and keep it running. The most difficult part is collecting the information. Once you have formed the “collection habit,” you’ll find the rest will come along with it.
Remember to Capture financial information for your business, Check it every other week, Record and Review the information monthly, then Act as necessary to keep your financial situation moving smoothly. If you follow this simple five-step system, you’ll minimize the “garbage” and the problems that come with it and you will maximize your financial situation.
A well-organized financial system will keep your business financially viable for many years to come