Over the years when I’ve spoken with sole proprietors & independent contractors about their bookkeeping system, there have been a few that tell me “Oh, I just keep track of my funds through my bank website. I’m too small to have to do any actual bookkeeping.”
I’m sorry to be the one to tell you this, but, your checkbook/bank website lies to you. Or, at the very least, doesn’t tell you the whole story. If you are a business person you NEED to do your bookkeeping. It doesn’t matter if you do $10,000 annually in revenue or $10,000,000, having the information that a bookkeeping system provides will help you manage your business, leverage your time and support you in growing your business.
So how does your checkbook lie? What isn’t it telling you?
- It can only tell you what you’ve deposited into your account. It doesn’t tell you who still owes you money, or how long it has been since they were supposed to pay you. It doesn’t tell you if they are consistently late, or if this is a one-time anomaly. Knowing which clients pay you promptly and which ones don’t can help you make decisions on who or even whether to offer more attractive payment terms, to request retainers, or even just plan for your cash flow throughout the month. Now, I know you’re thinking, but I know exactly who pays me and when. Are you sure? Even if you take payments immediately at time of purchase or service, there are still things your checkbook can’t tell you. What is your most popular product or service? Are you certain or does it just seem that way? .
- It can only tell you what you’ve spent from the account. It doesn’t tell you who you still owe money to. IF you are using an actual register, whether paper or electronic, you may know what checks you’ve issued that haven’t cleared yet. But, it doesn’t tell you who you still owe that you haven’t paid or issued a check. It can’t help you keep track of beneficial payment terms that could save you money, or remind you that certain bills are coming due. It can’t tell you how much interest (or late fees) you’re paying on that credit card or loan. It can’t capture the expenses you pay for on the credit card or with cash. Could you be overpaying your taxes because you are under reporting your expenses?.
- It isn’t telling you if you made a profit. Many new business owners mistakenly believe that if there is money in the bank then they’ve made a profit. Profit in its simplest terms is INCOME – COSTS = PROFIT. But not all costs are reflected in your bank account, or at least not right away. What about the bills that haven’t come in yet from your vendors, and the tax payments that will need to paid at the end of the quarter, and are you able to pay yourself a living wage out of your business income and still be able to run and grow your business? Cash in the bank doesn’t equal a profit, it just equals cash..
- It isn’t telling you if your company is growing, shrinking or stagnating. Again, by only looking at your bank account you can’t compare this month’s activity, profit, sales, expenses, cash flow or really anything to last month’s or the same month last year, or this year to last year. Or to do a comparison of the last 5 years. Without being able to see the hard data, compared side by side in accurate complete financial statements, you are only guessing as to what your business is doing. And if you guess wrong and base decisions off that guess, you could do terrible damage to your business and your livelihood..
- It can’t help you finance your growth. Going to any lending institution with nothing more than your checkbooks and last year’s taxes isn’t going to get you anywhere. They are going to send you home with a list of things you will need to provide them. Among those items will most likely be a current set of accurate financial statements, both a Profit & Loss as well as a Balance Sheet. If you’ve only been working out of your checkbook, or off your bank website, you are going to have to spend time (or pay someone to) take all that information and translate into a set of clean and accurate financial statements. So, you’re going to have to spend either precious time and/or money before you can get the financing your business needs to move forward.
Some business owners LOVE LOVE LOVE to get their monthly financial statements. They want to analyze what is happening in their business, what has changed since last month, last quarter, last year, 5 years ago. Others HATE it, all they want to do is what they got into business to do and have money in the bank to live and play off of. Either way, if you are in business, if you work for yourself, if you freelance, or however else you define it, you NEED a bookkeeping system that will tell you the WHOLE truth about how you’re doing and where you’re going. Your checkbook or bank website alone just can’t do that.
Would you like more information on this topic or how bookkeeping can empower both you and your business? Please feel free to contact us at firstname.lastname@example.org