How Your Accounting Can Save You Money
Are you a procrastinator when it comes to your accounting? Do you keep pushing it down on your To Do list because it’s “not your thing” or you have other more pressing tasks to focus on? Have you thought about outsourcing your accounting, but you don’t want to spend the extra money?
Have you ever considered that by making the investment of either your time to work on your accounting or money to outsource your accounting to a professional you might actually save money, and even make more money?
Let’s talk about some of the ways that getting your accounting done on a timely basis, whether by you or someone else, can save or make you more money, because who doesn’t want that!?
Catch Overpayments and Errors
I don’t remember spending $1,000 at Best Buy!
Have you ever been overcharged by a vendor, accidentally paid a bill twice, or had a fraudulent charge on your credit card? If you haven’t, consider yourself VERY lucky. At some point most of us have been a victim of credit card fraud, had a vendor make an error when they charged us, or even made an error ourselves and paid something we shouldn’t have. If you (or someone else) is monitoring your expenditures on a regular basis, you’re much more likely to catch these types of errors in time to do something about it. If you discover them six months later it can be very difficult to do anything about it. Also, it’s much easier to remember what that legitimate charge was for ABC Co. on your credit card statement when you see it a week later, rather than trying to remember what it was 9 months later and having to try to hunt down the information.
Improve Collections from Customers
Don’t leave money on the table!
If you invoice your customers for them to pay you later, you need to make sure you’re monitoring who has paid you and who still owes you money. In today’s world of e-mail overwhelm it’s easy for invoices to slip through the cracks. It’s not necessarily that your customer doesn’t want to pay you, maybe they just forgot or the invoice got misplaced. If you’re not monitoring your accounts receivable and sending reminders to people that owe you money, you’re leaving money on the table, and essentially working for free. It’s much easier to remind someone and get payment 30 days after you’ve sent an invoice than it is 6 months later. Or if you are invoicing them for recurring work, you can possibly set them up for automatic payments to make it easier for you and your customers.
Side note: You need to make it as EASY as possible for customers to pay you. Most invoicing systems today allow you to have customers make payments via ACH or credit card simply by clicking on a link in the invoice email and entering their payment information. The money goes straight into your account, and, in most cases, automatically gets recorded in the accounting system. How cool is that? You might be thinking - there are fees for that, I don’t want to pay any fees. OK, well let’s think about how much your time is worth. Let’s compare two scenarios:
Scenario #1 - You email the customer the invoice with a link to pay by credit card. They click the link to submit payment, and it goes straight into your account, and gets automatically recorded in the accounting system. The only time you spend is the 5 minutes to send the invoice and the money is in your account within the week.
Scenario #2 - You email the customer the invoice without a link to pay, so they have to send a check. The invoice gets lost in their inbox, so 15 days later you have to send them a reminder. They apologize and forward the invoice to their accounting department for processing. Their policy is to pay invoices after 30 days, so the check doesn’t get issued until over a month after it was sent, then it takes another 2-3 days to arrive by mail. You finally get the check in the mail, but don’t have time to deal with it right away so it sits on your desk for a few more days. You finally get around to making a deposit, maybe you do a mobile deposit which is pretty quick, or maybe you have to drive to the bank, so that’s probably 10-20 minutes, at least. Then you have to record the payment in your accounting system so that it reflects that the payment has been made, there’s another 10-15 minutes. So all in, you’ve probably spent between 30 minutes to an hour, AND it took a month and a half for the money to get into your bank account.
Is all of that really worth the 3% you’re saving?? My advice is to make sure your prices take into account the 3% fees and make it easy for your customers to pay you! (OK, I’ll get off my soapbox now.)
Monitor Your Spending
I could have sworn I cancelled that service months ago!
How many subscriptions are you currently paying for in your business? In today’s world of subscription based services, it is really easy to start paying for monthly services. And it’s even easier to forget that you’re paying for it even if you’ve stopped using it. Or maybe you have an employee that’s been going a little nuts on Amazon lately ordering office supplies that you really don’t need. By monitoring your spending on a regular basis, at least monthly, you can identify areas where you may be overspending so you can cancel unused subscriptions, or put better spending policies in place.
Identify Unprofitable Services
Are you paying for your customers to buy your services?
Does your business have multiple revenue streams? Have you ever taken a look at your profitability by service? Just because you’re making a profit as a whole, doesn’t mean all revenue sources are created equal. When you dive into the profitability of each of the services, you will find that one adds more to the bottom line than the others, and maybe there are some that are costing you money. Having this information on a regular basis can help guide your marketing efforts and your service offerings, so that you’re focusing your energies on the services that are making you the most money.
Be Prepared for Cash Flow Shortages
But I don’t have the money for that!
Have you ever been caught off guard by a large expenditure, like taxes or new computers? If you’re staying on top of your finances, you’re less likely to be caught by surprise. You’ll have a better idea of how your business is doing so you can be setting money aside for taxes. Or if you have a big insurance bill due every June, you can know to expect that if you do some cash flow planning. If you’re not looking out ahead of you to anticipate upcoming cash requirements, you’re more likely to have to use expensive sources of cash like credit cards or short-term loans. If you know they are coming, you can be setting money aside throughout the year so you are prepared.
Avoid Misaligned Decisions and Actions
Something doesn’t feel right!
Have you ever been faced with a big decision about your business but been unsure what the right course of action is? Maybe it’s whether to hire a new employee, or offer a new service, or rent new office space. These decisions can have big financial implications. But if you don’t have solid financial information to base your decision on, you may be left to rely on your gut, which is a very risky way to run a business.
Make the Investment
I often see business owners trying to cut costs by doing their accounting themselves, or hiring the wrong people to do it for them. They sometimes view it as a sunk cost that doesn’t have a significant impact on their business. And if you’re only doing your accounting once a year, you’re probably right, it won’t have an impact on your business, or at least not a POSITIVE one!
Just like making sure you have a computer that works, or that you have employees to do the work, or that your customers are finding you to hire you, your accounting is an investment that can have a huge impact on your business if you’ve got the right tools in your toolbox. Invest in a real accounting system, it will pay for itself in time saved. Invest in the right people to do the work, if you’re the owner of your business, chances are there are better uses of your time than doing your accounting. Invest in your financial education, don’t be afraid to ask questions, it’s your business you should understand what’s going on. Invest in your future, stop spending all of your time looking backwards, look to the future and make your dreams happen!