While the way we do business has transformed over the years, one thing has stayed the same: good businesses have good accounting.
One of the main reasons why any business fails is because they don’t properly manage their cash flow. Some of this comes from faulty-decision making. But poor accounting processes are frequently to blame.
However, good record keeping has more value than just keeping your business afloat. If you approach this critical business process correctly, you’ll be much better prepared to take your business to the next level. You’ll better understand where you are; you’ll identify imperfections in your systems more efficiently; and you’ll build equity into the business.
Here is some more information about why good record keeping is essential for your business:
Gain A Solid Understanding Of Risk And Growth Potential
Everything we do carries a certain degree of risk. But in business, being clueless as to what risks you face—and how you stand up against them—is putting your company’s health in unnecessary jeopardy.
Good records can help you identify potential problems. This includes things such as over-dependence on one form of lead generation or revenue. Or you may have an improper understanding of the origin and impact of chargebacks. Good record keeping can make these problems evident through the data.
But this can work in another way, too. By looking at where things are going well, you can easily identify potential growth opportunities. The better your data, the more you’ll be able to predict success. You’re in a better position to succeed when you approach expansion with this mindset.
Manage Cash Flow
This is one of the principal reasons why businesses fail. And it’s a recipe for disaster. You need to have a good understanding of your current situation. If your accounts aren’t current and you end up overextending yourself in one area, the results can be quite harmful.
For example, imagine you begin a marketing program. And then have to scale it back halfway through because funds get tight. This would kill all the momentum you’ve built. And it would make it that much harder to achieve your goals.
You need to have an intricate understanding of how much money is coming in. You also need to know how much is going out, and when it’s coming out. This is critical to the success of your business. But you don’t need to do it all in your head. Efficient automation of the right processes can make this much easier and more accurate.
Make Your Business More Profitable
Dispute management is great for plugging leaks that can dramatically affect profitability. But this is just an example of the many ways accurate records can help you boost your bottom line.
The key is to have accurate systems that tell you what you’re earning and spending. This allows you to identify areas where you’re spending way too much. It also helps with finding areas where you’re simply not getting the ROI you’d like.
Incomplete or poor records will make this so much harder. We’ve been guilty of this at some point in our lives, particularly when first starting out with a business. You make think that everything is in your head. And that you have a ‘pretty good’ idea as to how things are going. But this approach is simply not good enough, as your business grows and becomes more complicated. And not adjusting your processes can negatively affect the health of your company.
Optimize Dispute Management
Arguing over money is never fun. But if someone is coming after yours, and you think it’s wrong, you need to stand up for yourself. Good record keeping is critical in these scenarios. And being able to produce numbers, or even specific transactions records, can be invaluable in helping you resolve a dispute.
Yet even if you’re in the wrong, good data will get you to this conclusion faster. You’ll be able to tell right away when you’re responsible. You can then act quickly and move on. No extra time (or money) is wasted in the process.
Chargebacks are a great example of this. Credit card companies will work hard for their money. So, you need to be prepared to minimize liability and keep your revenues inside the business. But this can be applied to virtually anything. Make sure you have records of all tax receipts, compliance confirmations and anything else that pins you for responsibility. This helps you to easily present proof wherever and whenever it’s needed.
Increase Your Business’ Value
It’s important to build equity into your business. Many business owners use the eventual sale of their business and its equity to save for retirement. Or it may help them start their next project. And this is a great idea, as long as you’re actively working to build value into the business.
When you look at what makes a business valuable, some of the things don’t surprise us. Revenues are obviously important, and so are future growth prospects. But record keeping makes it onto the top of the list.
Accurate business records increases value in a number of ways, specifically:
- Accurate business records improve profitability, leading to higher valuations.
- It makes it easier for investors to verify your claims and identify what they might want to do with the business. Future investment will improve the image of your company.
- It demonstrates that everything is up-to-date with the law and relevant regulatory bodies.
- And lastly, it portrays your business as streamlined and efficient. This is something that all investors look for.
Right now, you may be looking into selling your business. But good record keeping can provide value in one form or another. You should see this as something you want in your business. They say a valuable business is a good business to own. And there’s good reason for that.