Most entrepreneurs don’t take the leap into building a business because they’re excited about managing the books—they’ve got bigger fish to fry. At least, bookkeeping and accounting weren’t the things that got me excited about taking my turn at the helm of a small business. I was thinking of the business problems I needed to solve.
I learned to appreciate the importance of staying on top of my finances the hard hard way. Had I understood then what I understand now, I would have gotten to profitability a lot sooner.
Who Is Your Profit Expert?
Speaking of profitability, who is your profit expert?
One of my best friends is a CPA. He and I would often talk about how my business was doing financially and he would offer really good advice, which at the time sounded like a bunch of accounting mumbo-jumbo to me. I was convinced I knew more about taking care of my customers and solving their business needs than he did. All his accounting nonsense was superfluous to where I really needed to focus my attention.
I was wrong. I didn’t have a profit expert. And what’s worse, it should have been me, but it wasn’t.
You don’t need to be an expert accountant to be your business’ profit expert, but you do need to understand what’s going on financially in your business. Every successful business owner I’ve ever met had a profit expert. If it wasn’t the business owner themselves, it was his bookkeeper or accountant, but most of the time it was him or her.
A few years ago I was speaking to a lender who said, “If I can tell more about a business by looking at the financial statements of the business than they do, I’m not going to offer them a small business loan.”
He was looking for businesses with a profit expert, although he didn’t say it that way.
How Do You Become the Profit Expert?
Becoming the profit expert in your business isn’t rocket science, but it doesn’t just happen. There are some things you’ll have to learn (if you don’t already know them) as well as some things you’ll need to do.
- Get familiar with your financial reports: If you don’t completely understand what the financial reports are saying about the financial health of your business, talk to your bookkeeper or accountant and have them explain them to you. Don’t be afraid to ask a lot of questions. If they aren’t willing to explain them to you so you can understand, it might be time to find another accountant (but that’s a conversation for another time).
- Step away from a purely transaction accountant relationship: I’m a big fan of a more consultative relationship with your accountant. Many small businesses only see or speak to their accountant during tax time, which I think is a mistake. Most accountants would embrace the opportunity to work with you to make your business more profitable. After all, next to you, they likely know more about your business than anyone else and you can benefit from their perspective.
- Don’t put off daily the accounting chores: If you are doing your own bookkeeping, brace yourself to spend time every day in the books. Fortunately, you don’t need to keep manual ledgers any more. There are some really good accounting packages available that will even make communication with your accountant easy. Speak with him or her to see what software they recommend for your business and use that. Also, I found that if I did my bookkeeping first thing in the morning it wasn’t the same “chore” it was if I waited until the end of the day (which often meant it didn’t get done). Spending time with the books each day will help you see on a daily basis how you’re doing and catch a potential problem earlier rather than later.
- Stay on top of the financial reports: A weekly review of the financial reports isn’t too frequent—particularly if you aren’t doing the daily bookkeeping yourself. It’s human nature to positively impact the things you pay the most attention to—and that should include your business’ profitability. Whether you’re doing the books yourself or not, pulling the reports every week and looking at results and trends is just a good idea. And, it will help you become your profit expert.
Everything Connects to the Books
The average lifespan of small businesses in the United States is only 8-½ years, with many that don’t make it past their second birthday—and even fewer that make it to their fifth. Particularly now, in the post-COVID world, it’s going to be more important than ever for small business owners to be the profit expert in their business’.
In one way or another everything going on in your business touches the accounting process. If marketing, sales, and operations were the spokes of a wheel, the accounting process and how well you manage your business finances would be the hub. Managing your business finances, rather than allowing them to manage you, will help keep those wheels turning.
Ty has been writing about small business and the business finance topics that impact a business’ bottom line for almost 20 years. With over 35 years in the trenches as a Main Street business evangelist, author, and marketing veteran, he makes the maze of small business finance accessible by weaving personal experiences and other anecdotes into a regular discussion of some of the biggest challenges facing small business owners today.