Uncomfortable truths

Overwhelmed with financialsAs with many aspects of the entrepreneur's life, the road to understanding your business' finances can be fraught with "potholes."

There's usually a point in the life of the business when the entrepreneur realizes that trying to do the books, on top of everything else, just doesn't make sense. As a business owner myself, I know that it pays to hire experts for some aspects rather than try to learn what to do, and then do it well. If you arrive at the point where hiring a bookkeeper makes sense, you may think potholes will be a thing of the past.

Hopefully so. But there may still be one or two to navigate.

One new pothole may be that you are forced to take a hard look at what financial reports are telling you. Do they reflect what you expected to see? If not, why not? Another potential pothole is realizing you need to change bad habits. It's simply an uncomfortable situation.

When I begin working with a new client, I have many questions about the state of the company's books. Some I can answer by looking at existing financial reports, while others are best answered by the business owner. The questions are designed to uncover processes that work well, and the ones that do not. Those processes, or lack thereof, usually tell me what the potholes were, and what caused them.

These initial conversations sometimes come across as a litany of what the owner was doing wrong, but the past is the past. The goal is to put things right, and then put good processes in place so the road ahead is, indeed, smoother.

I find that many potholes are fixed simply by instituting new habits, and the trick is to do it right when it happens. Business owners have too much to think about to remember what happened last week, let alone last month. Here are a few habits to consider:

  • Keep receipts
  • Have a special location for incoming paperwork (like receipts!)
  • Document online transactions by saving a PDF file, or printing to paper, and then put them in that special location, or get them to your bookkeeper
  • Note special circumstances on relevant paperwork

Make no mistake. Your business is yours to run, and a bookkeeper isn’t going to tell you where you should or shouldn’t spend money. Having said that, if an expenditure is intended to be a business deduction, and I know it's not allowable, I will certainly bring that fact to the client's attention. After all, why raise eyebrows during an audit from the IRS? It just isn't worth it.

In general, it bothers people to know that they’ve been doing something incorrectly. This can be particularly embarrassing when it comes to managing money. However, if you think of your bookkeeper as a trusted advisor, not unlike a doctor, then think of the conversation as therapeutic. By laying out all the facts, the two of you can see where the problems are, and formulate a plan of treatment.

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