Simplify Your Accounting
These days there is data for everything. Your Apple Watch or Fitbit has your heart rate and step count for the last 5 years, your phone knows the last time you went to the mall, and if you are like a lot of business owners you spend a lot of time and money to get every detail into your accounting software. Not all data is useful, below I’ll go through some common ways you are over-working and a couple of areas that you might want to focus on instead.
Areas you might be wasting time:
- Number of expense accounts – There is no magic number, but 25-30 expense accounts will be enough for most small businesses. Larger companies can add more when it makes sense. If your P&L is 3 pages long you should consider if breaking auto expense into 7 subcategories is going to influence your spending habits or simply waste time. QuickBooks and most other accounting systems have the ability to run expense by vendor reports that are much more helpful to control spend than looking over a long list of expense accounts.
- Manual data entry – This one is almost too obvious to add, but if you or your team is spending time typing in transactions 1 by 1 you need to look at other options. Nearly all modern accounting systems have links to banks and credit card companies or offer easy upload functionality. Time spent typing in individual transactions is time better spent elsewhere.
- Lack of Accounts Payable Process – If your answer to the question, “How does your business pay the bills?” is 17 different ways involving 5 different people it is probably time to look at standardizing that process. Too many businesses spend time catering to every exception to the standard process vs. enforcing the standard process internally and with vendors. Paying the bills should be done on a schedule and should be a predictable, consistent process.
- Document retention – I don’t want to mislead, having receipts and support for expenses is important, but this should be done as efficiently as possible. Keep records organized by year or month and ideally scanned electronically for easier retrieval in case of audit. Use the AmEx app (or similar) to snap receipts of credit card transactions on the spot vs. carrying around wads of paper and stuffing them in a shoe box. There is a cost/benefit to document retention and a lot of cost in time and money can be saved by using a little technology on the front end.
- Number of bank accounts and credit cards – There is a hidden cost in time and effort for carrying unnecessary bank and credit card accounts. Close unused accounts and consolidate to the lowest number that makes business sense. Each account is another statement and balance to reconcile monthly, keep that work to a minimum.
- Mixing personal and business expenses – This is not only a time waster if you or your accountant is trying to separate personal from business, but also a risk for tax penalties and interest if you take business deductions for personal expenses. Keep your business expenses in the business and personal far away, getting a few extra points on a company credit card isn’t worth the risk.
- Doing your own accounting – A small business can get away with this for a short period of time, but if you are still doing your own accounting after several years in business you need to consider if that is the best use of your time. You didn’t get into business to be an accountant and that time is likely to be better spent elsewhere.
Areas to focus instead:
- Accounts Receivable Aging Schedule – You’ve earned this money, collect it! Too many growing businesses don’t keep a close eye on what they are owed and end up not collecting the money they’ve earned. If your Receivables listing is getting old consider emailing reminders, sending statements, or calling clients at set aging intervals. Most businesses want to pay their bills, but some need reminders to make that happen.
- Pricing your products/services – We are experiencing the highest inflation in many decades, business owners along with proactive finance teams need to be reviewing pricing on a monthly or even weekly basis. Restaurant owners that aren’t watching their food costs closely can be losing money in a short period of time. There are very few businesses that don’t need to be updating prices on a regular basis, make sure you aren’t losing money every time you are making a sale!
- Budgeting – What do you hope to accomplish in the next year and how will you achieve it? Growing businesses need a plan for what the future holds. Spend time planning and discussing the next 12 months vs. always looking back at what happened in the past.
Hopefully the time wasters don’t apply to you, and you are already spending your time more wisely, but if you have any questions I’d love to connect.