Here’s a business model that works:
It’s an amazing feeling making a dream of putting up a business a reality: you’ve figured out what you want to do, studied the target market, and poured in hours of work getting the aesthetics juuust right.
But then the money starts to come in and go out at a rapid pace, and suddenly you’re left reeling: how much did I make this month? Wait, I spent how much on paper? Am I prepared for tax season?
If you can’t definitively answer any of those questions, you may want to start looking into your record keeping practices.
According to business writer Jean Murray, part of wanting to succeed with your business is creating a financial system that “clears out the garbage and that gives you accurate and useful information to see how you are doing and so you know when to act on this information.”
Enter CCRRA: Capture, Check, Review, Record, Act.
CAPTURE the information
“If it isn’t there, it doesn’t exist,” writes Murray. Get into the habit of ‘capturing’ everything when it comes to your business so that it becomes automatic.
It’s difficult, but a very important step.
“Keep track of every amount you spend for your business and every amount you take in as sales. Don’t worry at this point about doing anything with the information. Just be sure everything you capture includes (a) a description of the item, (b) the amount, and (c) the date,” said Murray.
CHECK to make sure the info is complete and correct
Murray recommends you go through your captured information every two weeks in order to check if everything is ready for recording.
When recording, be sure you have included the date and amount, and enough detail on what the expense was for that you can record it accurately.
“Set up a specific time for an appointment with yourself at the end of alternate weeks (every other Friday, for example) to check everything. Don’t wait too long; the longer you wait to do this, the more difficult it will be to remember and collect information,” she said.
RECORD information to save it
“Recording means putting your financial information into useable form,” Murray writes. After checking, let your bookkeeper (or yourself!)record it into a spreadsheet or any accounting software. Just be sure you get everything recorded each month, so you can review it.
REVIEW the information
Murray advises to print out four reports each month:
- Balance sheet
- Income statement
- Accounts receivable aging report
- Accounts payable report
“For each report, include a comparison with the same report information from last month. Pay special attention to specific information within these reports.”
Finally, ACT, “based on what you know”
In most cases, “ACT” can mean doing nothing if everything looks all right, said Murray, but in other cases, it might mean making a change for yourself.
She adds that it will be helpful to identify “trigger points” where the information in each report “compels you to act,” and here are her suggestions:
Balance Sheet. “If you see liabilities are increasing each month for three months (which probably means assets and/or expenses are also increasing), cut back spending,” said Murray.
Income Statement. “If you see that a particular expense is increasing as a percentage of sales, ask yourself why it’s increasing,” Murray said.
Additionally, if the increase is needed, you might want to cut spending on other expenses to maintain your profit level.
Accounts Receivable Aging. The longer you let debt owed to you go unpaid, the less likely you will be at receiving the money.
“Be assertive in going after slow payers. Set up a collections system, as I discussed above, to make sure you’re paid promptly and that slow payers are not left to assume you don’t want your money,” Murray said.
Accounts Payable. “Pay what you can as quickly as possible. Try to pay early to get discounts. If you can’t pay all your bills, pay those which will cause you to incur penalties, or which will affect your credit rating,” said Murray. This includes following up on people designated to pay the business bills, because even if it’s their job, as the business owner , you are ultimately responsible for making sure your business debts are paid.
Hope these helped, and go get your coin, queens!