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Part 3: Best practices for small businesses planning a financial roadmap

Part 3: Best practices for small businesses planning a financial roadmap

We’ve made it to the final two of five best practices when building a financial roadmap for your small business. Now, let’s wrap up with how to approach financial planning and fixing exceptions and adjustments as they happen.

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Part 3: Best practices for small businesses planning a financial roadmap

We’ve made it to the final two of five best practices when building a financial roadmap for your small business. As a refresher:

  • The first blog post of this series focused on the importance of finding your financial support systems in regard to tax filing, strategic advisory and accounting operations.
  • The second blog post covered two more best practices as they apply to the revenue process and back-office systems.

Now, let’s wrap up with how to approach financial planning and fixing exceptions and adjustments as they happen.

Financial reporting must be useful to both you and your businesses needs

Specifics matter in business. Every day you are making hundreds of decisions about your business. Each of those decisions impacts the success or failure of your business. Wouldn’t it be nice to know which decisions played out positively and which ones impacted the business negatively?

The first step in truly understanding your business is to correctly identify, categorize and document your transactions. When we say transactions, we mean expenses and revenue or incoming dollars. In a previous blog post, we used the example of marketing expenses to determine how successful certain investments have been on the marketing front. In a similar example, let’s talk about headcount and payroll.

Depending on the size and type of business you run, headcount may be the most important factor of your success. In the professional services world your capacity and resources are your product. Therefore, understanding the benefit of adding an additional consultant, contractor or general team member may directly correlate to revenue growth. On the flip side, hiring too soon may have a negative impact on your margin if there isn’t work that could be done by this new employee.

In this case it may make more sense to hire a salesperson that could drive new leads and projects. Giving you the data and visibility needed to make the next consulting hire. This type of “capacity planning” is necessary as businesses grow. If you aren’t allocating payroll to the unique business units it will be very difficult to understand the impact of an additional employee. For example, we could just outline an entire bucket of expenses for “payroll” or “overhead.” What that doesn’t tell me is the impact or difference between a marketing employee, sales person, manager, consultant, contractor and so on.

When thinking about the granularity needed when tracking your financials, you must think about the questions you will need to answer and the decisions you will have to make. Clear, concise and well-documented financials make decision making incredibly simple. Pairing that with a bookkeeper that accurately reconciles and categorizes these transactions daily ensures you have the visibility and confidence needed to make strategic decisions and investments into your business.

The most important thing to remember is that there are truly two types of bookkeeping:

  • Bookkeeping to file taxes (traditional CPA bookkeeping)
  • Bookkeeping for financial analysis & strategic decision making

Make sure as your business grows that you lean into and require your bookkeeper to get granular with your transactions. Accuracy and timeliness are paramount to successful financial analysis. Take a look at your books today. Make sure you are getting the financials on time, accurately reconciled and categorized, and that there are no “catch all” accounts in your books.

Fix exceptions & adjustments as they happen (not 30 days later)

Running a business is hard. You are incredibly busy. As a business leader you have a million priorities. It’s incredibly difficult to stay on top of every little thing happening across your business. We often find ourselves moving so fast that trying to recall what we had for breakfast this morning (let alone last week) is an impossible task. Now imagine trying to remember what a single transaction on the company credit card was 30 days ago….yikes!

It can be extremely easy to put a Post-it note on your desk and say I’ll take care of this next weekend. But when the end-of-month rolls around, you likely won’t remember where that note went let alone why you wrote it in the first place.

Bookkeeping errors happen. A transaction was placed on a personal card, a vendor invoiced you twice, you approved an invoice that shouldn’t have gone out, and on and on and on. Errors and issues will come up; it’s inevitable. It’s the timeliness and accuracy for which you make these adjustments or clean up the exceptions that supports healthy financials.

If an exception happens:

  1. Call it out to your bookkeeper.
  2. Determine if this is a regular or a one-off issue. (If your bookkeeper didn’t bring this issue to you in the first place, that's a bigger issue for another day.)
  3. Request the appropriate adjustment.
  4. Document the reason for the adjustment, and get it done as soon as possible.

Small things like transaction categories or credit card bills may seem insignificant, but a one-time mistake can snowball into a bigger issue down the line. More importantly, tracking revenue accurately is the most important thing you can do as a business. A small issue can turn into a massive cash flow problem down the road. This may be how revenue was recognized, whether or not it was invoiced in the first place, as well as errors in the actual invoices that should have been for higher or lower amounts.

Each of these scenarios highlights small issues that can become bigger ones down the road. When errors or issues come up, take care of them while they are still fresh in your mind. Take care of them while you still have the documentation in front of you. Don’t wait to play the memory game and hunt for the receipt at the end of the month. Not only will you have out-of-date financials by the time you can close your books, but you’ll also waste time running a fire drill to solve this issue as you prepare for month-end or year-end close. Take care of it when it happens and find a partner that takes care of this for you.

Related Blog Posts

Part 1: Best practices for small businesses planning a financial roadmap
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Part 1: Best practices for small businesses planning a financial roadmap

Part 2: Best practices for small businesses planning a financial roadmap
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Part 2: Best practices for small businesses planning a financial roadmap

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