Losing Track of Your Financials – 8 Ways to Get Your Numbers to Track Themselves
The most successful businesses realize that keeping track of their numbers is essential to their success.
Tracking your numbers helps determine if you are making or losing money, gives you a basis for decision making, and helps you avoid costly mistakes.
Unfortunately, many businesses don’t track their financial numbers. And as a result, they often find themselves scrambling when they need information or answers, or just a confirmation that the business is healthy.
In this article, I’ll talk about the reasons why some businesses don’t track their numbers, why they should, and tips on making it easier to do so.
Why don’t some businesses track their numbers?
These are some of the common reasons we see:
1. Lack of Time and Resources
Running a business takes time. Managing employees, dealing with customers, fulfilling projects, working with the banks, the board, vendors – these are all important priorities for any business. When a business does not have a dedicated resource whose sole priority is tracking the business finances, these other duties are given greater priority and the numbers tend to fall off the priority list.
2. It’s Overwhelming
Business finances can be very complex. Understanding profit margins, gross and net income, cash flow forecasting, and budgeting isn’t easy. Some business owners and management teams don’t understand how to find and analyze their numbers, and tracking them can become overwhelming as a result.
3. Fear of the Unknown
Some business owners and management teams are afraid of what they might find by digging into their numbers. Perhaps they aren’t ready to face reality and ignorance can be blissful – until it’s not. For that reason, they don’t dedicate the time or resources needed to track their business finances.
4. It’s Boring!
Accounting and bookkeeping aren’t for everyone. But for smaller businesses, this ends up being left up to the business owner, salesperson, marketing person, office manager, or someone who simply doesn’t enjoy tracking numbers. . Accounting can be a tedious and difficult process and many people feel they have much better things to do with their time!
What happens when businesses don’t track their numbers?
There can be dismal implications when a business doesn’t track its numbers. Here are just some of the potential pitfalls:
1. Underestimating Costs
Without accurate financial data, it’s impossible to know what your costs are today, or what they’ll be tomorrow. Underestimating your costs could be disastrous, resulting in loss of profitability and causing severe cash flow issues. Overestimating your costs can lead to unnecessary price hikes or overcharging customers, resulting in loss of revenue and sales. By tracking your costs, you have the data to maximize profitability because you’ll have an accurate count of your costs at all times. .
2. Overestimating Cash Flow
There’s no feeling worse than thinking you have enough cash, only to wake up one day and realize you don’t. Surprises like these can cripple your business or worse, cause it to sink fast. They can also cause undue stress on the business owner, employees, and all other stakeholders. By tracking your numbers, you can plan ahead for cash highs and lows, giving you and your business time to proactively make decisions and get cash in place before you need it. So long as you are tracking your numbers, you’ll have the ability to act, instead of reacting, to cash flow swings you’ll know will be coming down the line.
3. High Concentration Risk
Simply put, concentration risk is when a big portion of the business cash flow is focused on a single customer or vendor. Their failure can lead to business failure. When you track your numbers, you can easily spot concentration risk and work to correct it. Yes, a business owner might have a gut feel for where they have concentration risk in their business, but if they want to scale the business, they have to have data that confirms or denies their intuition. Tracking the numbers allows the business to operate independently without relying on anyone person so that others can help make decisions and guide the business forward.
4. Underpaid or Overpaid Taxes
When numbers go untracked, year-end tax obligations end up being an unwelcome surprise. Scrambling at the last minute to get financials together during tax time can also lead to errors, resulting in tax overpayments or underpayments, not to mention increased tax preparation fees. Track your numbers consistently throughout the year so taxes become less of a burden than they already are.
5. Bad Long-term Business Decisions
Not knowing your numbers can often lead to making bad long-term business decisions. For example, signing a long-term office lease when the business is in serious financial trouble, making a large equipment purchase that the company can’t actually afford, not making a key hiring decision that would create a new profit center, etc. Making key decisions with long-term implications without ample information can be disastrous.
6. Can’t Qualify for Financing
If you’ve ever applied for a loan, line of credit, or tried to raise capital, you know that the very first thing a lender or investor will ask for is financial information. Delays in providing this information not only delays your loan approval, but it also calls your credibility into question at a time when it matters the most.
7. Can’t Execute an Exit Strategy
Thinking of selling your business someday? You’ll probably want to know what it’s worth. Valuing a business requires knowing the business’s past and present earnings, revenues, and costs. No financial information means not knowing the value of the business. And without a business valuation, selling the business becomes close to impossible.
8. Missed Business Opportunities
Having accurate numbers at your disposal gives you the confidence to move forward with acquisitions, investment opportunities, financing deals, and other business opportunities. That same data may also give you reason to pause or delay investments knowing your current state of affairs. Simply put, good business decisions cannot possibly be made without tracking financial information.
9. Increased Risk of Fraud and Embezzlement
When a business doesn’t track its numbers, fraud and embezzlement can easily go undetected. Without consistent tracking, there’s really no way for the business to identify unusual or suspicious activity, let alone implement policies and procedures to prevent those things from happening in the first place. Safeguard your assets by tracking your numbers.
How to get your numbers to track themselves
How do you avoid the mistakes and missed opportunities that result from not tracking numbers?
The answer is simple. Get the numbers to track themselves.
Nowadays, there is a lot of great technology out there which can be put to good use and help you get your numbers in place. That way, you can get your numbers to track themselves and steer clear of all these issues.
Here are a couple of ways in which you can get the numbers to track themselves.
Link accounts to your accounting system
You should link your bank and credit card accounts to your accounting system.
That will automatically bring all the transactional data into one place. Bank rules can be set up to tell the system exactly how to categorize those expenses.
That takes away a lot of the manual data entry you would have to do.
Always send invoices to customers and vendors electronically, where possible.
You should send these directly out of your accounting system, as opposed to creating them in Excel or Word then sending via email.
This will not only be helpful for tracking purposes but will also help the customer pay invoices easily, directly through your accounting system. You should also provide a link on your invoice and streamline the entire invoicing-to-payment process.
Automated accounts payable processes
In order to mitigate the risk of duplicate payments, you should set up paperless and automated accounts payable processes.
Make sure those processes include workflow approvals. This helps cut down on time and avoid errors or mistakes.
Expense reimbursement and approval systems
Businesses should implement an expense reimbursement and approval system to ensure that expenditures are in compliance with the company policy. Having a system like this in place allows you to prevent, detect and deter fraud and embezzlement. It’s also helpful when a business is struggling to have more visibility and control over every possible business expense.
Track your KPIs
KPIs (Key Performance Indicators) are supplemental performance indicators used when evaluating the success of a project or process. Often, individual metrics are not enough to indicate performance, so KPIs combine data from multiple areas to give a single overview.
You should work directly with your CFO to create custom-tailored KPIs for your company.
Ask yourself what numbers drive your business forward.
When those KPI targets aren’t met, you’ll know quickly what to focus on. KPIs give you insight into why the company’s not moving the way you expect, allowing you to focus specifically on the area that needs your attention.
Have your accounting system generate alerts when things are not going as expected.
For example, you can have your system send you an alert whenever a customer’s payment is 30 days late. Use the system to notify you at pre-scheduled times when things are not going the way you planned.
Set up your system to automatically generate and send you reports.
For example, a weekly accounts receivable (money coming in) and accounts payable (money going out) detailed report will help you see the health of your cash flows.
Work with your CFO to set up auto-generated reports that are sent to you automatically. That way, you don’t need to remember to go into the system and run them.
Not a numbers person? Get your system to display the data in pictures and visuals using charts, graphs, illustrations, in various colors and shapes.
Visual reports tell you the story of what is actually happening with your business. A good visual report will draw your eye toward an important trend in your business, or a given number, or a line item that needs attention. This type of reporting allows businesses to review their performance efficiently and manage the business by exception so that precious time is spent focusing on key issues.
Tracking your financial information is essential for business success.
Automating that process will help you stay on top of your numbers, make sound business decisions, and know the health of your business at any time.
Understand, though: garbage in, garbage out.
The recipe for success includes having a dedicated accounting and finance professional who will get the right technology in place, set up the right processes, and get the data into your accounting system consistently and accurately. From there, use KPIs and visual reporting to efficiently and quickly keep a pulse on the business health consistently throughout the year.
If you need any help with this, we are a phone call away.