Although some businesses never seem to have cash flow issues and just hum along without angst, that isn’t the norm. As we hear time and time again, most small businesses fail in the first two years. I’m sure you’ve heard me say before that I believe this is because of the lack of proper accounting. Most small business owners are not qualified to handle their own bookkeeping and have no idea how to read financial reports or utilize them to help them run their businesses.
My mission in running Sherrington Financial Fitness has always been to help small businesses succeed.
That is why we do what we do. Every small business owner needs to keep track of their money in a way that helps them to know what to do when, for their business. Too many times this means hacking together enough information at the end of the year so that their tax preparer can put together a reasonable tax return.
Unfortunately, in doing things after the fact, most small businesses are missing out on a tremendous amount of information that can be used to steer the company in the best direction. The data provided by having clean, up-to-date accounting records can mean the difference between keeping on top of your bills and having enough money to make payroll and going under or having to continually subsidize your dream of being a successful entrepreneur.
Too frequently, I see business owners who are at a loss as to how to succeed. They feel like they are working themselves to the bone but have no idea if they are making money. I like to say that the accounting is like the foundation of your business. Just like you wouldn’t build a building on a shoddy foundation, you shouldn’t try to build a business without solid accounting to rely on for guidance.
If you have clean records, then you can use the financial reports to clearly see how much you’ve earned and how much you’ve spent (on the Profit and Loss Report, sometimes known as an Income Statement) and what your business is worth (on your Balance Sheet). In combining the two, you can tell how much cash you should have left after you’ve paid all your bills and taken out enough to live on yourself.
However, if you don’t know if the company is profitable, then you won’t know if you’re taking more out for yourself than the business is making. If you do take out more than the profits, this can cause cash flow issues and long-term strain on the viability of the business. I believe the secret to success for any business is keeping accurate, up-to-date financial records and knowing how to read and understand the reports to know what is happening in the business.
If you’re already running your business this way, congratulations, you’ve upped your odds of success tremendously. However, if you’re struggling to figure out how to keep track of all the numbers, then contact us and let us help you.
Your success is our success and we’re here to help you find it.
Sherry Lutz Herrington is the owner of Sherrington Financial Fitness, a business consulting and accounting firm specializing in strategic business planning and solid financial accounting for businesses. She is also the author of Strong Women Thriving (https://strongwomenthriving.com/), a blog which focuses on empowering women to be financially savvy, particularly after experiencing financial abuse. Sherry is currently writing a new book that both shares her personal story and addresses financial abuse. She can be reached at email@example.com.