Small business owners often dislike the tedium of bookkeeping and accounting. But they should look at them as valuable management tools.
There is an old business adage that goes something like, "If it can't be measured, it can't be managed." Add to that, "What gets measured gets watched, and what gets watched gets done," and you have a mouthful of clichés that are clichés for a good reason: They can help you run a better business.
I started my first business when I was 19, and did all my own bookkeeping from day one. Ever since, I have learned to both love that part of my business and depend on that data to make management decisions every day.
Most entrepreneurs I work with, however, feel the opposite about balancing the books. They find it a nuisance. They are so focused on their products and services and sales that they often can't be bothered with the numbers.
This is understandable and I would never suggest they redirect their energies toward something they are not good at or that doesn't come naturally. I would, however, insist they delegate and demand good financial information from their bookkeeper and accountant – whether in-house or subcontracted out.
Start by asking for month-end statements. This is key. Waiting up to six months after the year ends for your accountant to show you consolidated numbers that include the effects of sales and expenses long as 18 months prior is bordering on useless information.
Instead, by the middle of February, at the latest, for example, you should have an income statement and balance sheet that shows you what happened in January. This way, you can take a sober look at pretty fresh information, ask questions about a single month's results that don't make sense to you, and allow that to influence the next 11 months of your year.
I got my bookkeeper to get my month-end statements done within three business days of the end of each month – even including a monthly inventory count. With the intelligent use of online banking, you can have your bank statements reconciled immediately – we did it daily. There is no benefit to waiting.
One thing your bookkeeper may mention is that some of your vendors' invoices and statements don't show up until well into the following month. Don't let that stop you. Just enter such recurring bills in the following month's statements. That will mean your very first month end might be missing some expenses but you'll pick them up the following month and every month after that.
When you get good data about your business's operating financials within a few days of the month you are reviewing, you will see numbers that don't look right. And that that will lead you to ask questions that will lead you to manage your business differently so that those numbers will eventually look better. Measure, manage, repeat.
What I am suggesting is not more work and not more expensive. It's work that is already being done, only you are doing less work more often.
Forget batching your accounting information into yearly "old news" doses. Do it monthly and you'll find yourself being much more proactive and reaping the rewards along the way.
Special to The Globe and Mail
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.
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