Knowledge Is Power!
You know the saying – Knowledge is Power. There is a lot of truth to that. In business, knowing where your money is going out and coming in can give you a huge confidence in decision making. Sure, you have an idea of how things are going just from what you work with day in and day out. We’re talking about taking that to the next level – the black and white, confirming your hunch level.
Does that sound good to you and at the same time you’re wondering how to do it? You want to run reports like Profit & Loss Statements and Balance Sheets and also know how much each piece of equipment is costing you but all of that makes your head spin. Fear not for it’s as simple as record keeping. Now I realize your strengths may lie somewhere besides organization and that’s ok. I bet you know someone who excels in that area. Whether you take on bookkeeping yourself or turn it over to someone trusted so you can do what you enjoy most, it’s still helpful to have an idea of how it all works.
Knowing your numbers on a broad level by running P&Ls and Balance Sheets can only happen if proper record keeping is in place. It’s one of those ‘only as good as what you put into it’ things. I want you to have complete confidence in the numbers that are in those reports so that means consistently tracking the movement of money in, out and within the business.
Having a process or procedure is the way to go. If that sounds too technical, keep in mind that just means getting into a routine and sticking to it. Let’s work through an example of money going out: A foreman purchases some irrigation supplies he picked up for a customer’s emergency repair by charging it to a house account. He is given a receipt for his purchase. What would happen to that receipt at your place? At our place the receipt is marked up with information such as who purchased it and which customer is was for, then placed in a designated spot for the bookkeeper. That marked up receipt gets routinely entered into the Company’s accounting software, noting all the details on the receipt. The charges get tracked to specific expense accounts, perhaps Irrigation Supplies in this case. When the store where the supplies were purchased from sends out a Statements of all charges, the bookkeeper can recognize if the charges are legitimate by already having the receipt to compare (reconcile) the account. Recording expenses this way opens up a lot of doors.
At the end of the day, week, month, you get the idea, having detailed records makes it possible to hop right into that accounting software and take a look at how much was spent on Irrigation Supplies for the specific time frame in question, and even compare year over year. I challenge you to get a shoebox of receipts to give you the same information. Depending on how many people are in your organization, there is the added benefit of checks and balances. The bookkeeper sees what the Foremen are buying and maybe someone else is involved with cutting final payments to suppliers. Just more eyes to keep everyone honest.
The same type of tracking can be done for money coming in. When building invoices (or estimate that you turn into invoices) detailing how much of that invoice is for each specific item or service enables the business to get a big picture view of where money is coming in from. Back to those Irrigation Supplies, the client needs invoiced for repairs including those supplies. By creating an invoice that has multiple line items including a separate one for supplies alone, the Company can see how much revenue is coming in for Irrigation Supplies. The really fun part is that consistent tracking of how much is spent on Irrigation Supplies (Expenses or, more likely, Cost of Goods Sold) and how much is brought in for Irrigation Supplies (Income or Revenue) can shed a light on circumstances such as failing to charge clients for supplies or undercharging them. Once you have the information captured, there are a ton of ways to take a look at it.
Keep in mind that as with all things, balance is key. There is no need to make detailed receipt entry of each and every nut and bolt if nobody in the business needs to know that information. You will find your own balance between detailed data entry and getting the detailed reporting information needed. It can be as unique as your business. And as powerful as you want to be.
To learn more, Sahra can be reached at sahra@thegreenexecutive.com
Sahra Linnemann – Consultant and Head Bookkeeper
The Green Executive®