Create a strategy that works for your businessFirst, things first, it’s all about you. Yes, you read that right. When you create an accounting process for your business, make sure it actually works for you. Your strategy should keep your abilities, likes, and dislikes at the top of your priority list. It will be tempting to copy and paste an accounting process/system/strategy from another successful business, but it won’t work out well for you in the end. While your system can be designed in a similar fashion, it’s important each of the working pieces is tailored for you and your business. For example, your:
- Cash flow strategy
Track the right metricsTo ensure you are getting the most out of your accounting process, you need to be tracking the right metrics. With helpful tools, you can track just about everything, which is great, however, it can also lead you in a lot of unnecessary directions. It’s important you choose metrics (or KPIs) that will help you reach your business goals, if not you’ll be collecting data with no value. Again, as you choose which metrics to track, stay focused on how each of them will help drive results. If you are attempting to improve your finances, consider tracking metrics surrounding important factors like:
- Cost of goods sold
- Accounts receivable
- Cash flow
- Marketing return on investment
- Customer acquisition cost
- Number of customers (gained and lost)
- Customer retention
- Customer lifetime value
- Employee turnover rate
- Employee satisfaction
- Internal promotions vs. external hires
- Employee retention
Get a good grasp on your cash flowAs previously mentioned, cash flow is one of the key metrics to track when attempting to improve your financial performance. But in reality, it’s more than just a metric, it sits at the heart of your financials. A strong cash flow is the difference between a successful business and an unsuccessful one. To obtain a strong cash flow, you’ll want money more consistently flowing into your business than flowing out of your business. When your cash flow is heading in the right direction, it’s likely the rest of your finances are too, therefore, in order to maximize your accounting, you need to maximize your cash flow. To do this, it’s important you understand the three ways cash flows in and out of your business and how you can improve it.
- Cash flow from operating
- Simply put, this is your primary form of cash flow. It focuses on positive cash generators like sales, interest payments, and investments and then takes into account things that negate cash flow like wages, taxes, and the cost of inventory. To keep cash flow from operations on track, you’ll need proper bookkeeping and the help of budgets and forecasts.
- Cash flow from investing
- This is the cash spent or made from any investment-related process and is typically recorded on a quarterly basis. Making investments in (or selling) physical assets or securities can help drive this form of cash flow.
- Cash flow from financing
- Cash flow from financing is referring to the money raised and repaid to investors. Driving this form of cash flow is simple, raise new capital.
Create and utilize budgets and forecastsFor many small to medium-sized businesses, budgets and forecasts are pushed to the bottom of the priority list. However, a successful accounting system relies heavily on these reports to drive the business forward. Budgets are created by using previous expenses and projected expenses to plan spending for the year (or quarter) ahead. Forecasts take your sales, spending, and potential market environments into account to gauge where your business will be in the next year (or quarter/month). Both reports are meant to keep your business on track. To get the most out of your budget, you should frequently compare it to your actuals. This is known as budget variance (another helpful KPI). The budget variance will show you where you’ve under or overspent, allowing you to go back in and make the needed adjustments. To get the most out of your forecasts, you should create multiple scenarios based on the market. Start with:
- An average market
- A not-so-good market
- A better-than-expected market
Work with a trusted accounting partnerAs you’ve read through the article, you probably noticed nearly every aspect of your accounting system works together. When one area of the system is off track, other areas will suffer, which is why it’s so important all facets of your accounting are easy, understandable, and work well for your business. However, getting to a place where you are maximizing each piece of your accounting system takes a lot of work, which is why we suggest working with a trusted accounting partner. They’ll take the tough parts of accounting off your plate and manage your finances so you don’t have to. At creditte, it’s our goal to build better businesses with better numbers. We provide straightforward, no surprises accounting, in a language anyone can understand. We’ll walk you through the entire process of building an accounting system meant for you by:
- Helping you create a strategy suited for your business
- Creating big and small goals to drive your business
- Tracking the right metrics
- Getting a handle on your cash flow
- Creating and utilizing budgets and forecasts