The kids are back in school, and now that the homelife, albeit crazy, has settled into a bit of a routine, you have nothing to do but work on your business, right? Wait, here comes your oldest with what looks like homework. Yep, your daughter needs help with her homework.
That’s okay, helping your daughter works well with what you’re trying to accomplish here. Your daughter is learning about being consistent, and she’s forming new habits. And you’re getting your brain back into learning mode. I wonder which kind of homework you enjoy helping her with most? Is it in literature, math, history or science?
The three Rs of learning come to mind. Reading, writing and arithmetic. It’s the general basis of what the education system is built around. But as a system, and even a memory aid (mnemonic) or acronym, it kind of sucks. For instance, only one word starts with R, and as a guideline for designing or using a system, it is vast and open to guess work.
Instead of revamping the entire educational paradigm, let's focus on a process that will help you become more familiar with your business, and guide you towards knowing your numbers. Take a moment, if you will, to consider the three Rs of bookkeeping. Bookkeeping is very repetitive, and tedious in nature. However, that doesn’t necessarily mean easy, and the tediousness can be relatively time consuming. I suppose the process could be the five Rs if we include routine and repetition, but those are a given.
The three Rs of bookkeeping are Recording, Reconciling and Reviewing.
Then, repeat with a consistent routine. Much like your daughter is struggling with her homework, you will feel the uneasiness of learning a new habit. But, I already know that you understand the benefit, so use that as motivation while implementing the process. Each step is represented at each point of a triangle. Starting with recording, the process continues daily, and becomes almost second nature to you.
The first R in bookkeeping, recording, is much easier today than it has even been.
Along with cloud accounting software like QuickBooks or Sage Intacct, and a cool expense capturing app like Receipt Bank or AutoEntry, you can automate your recording simply by taking a picture of your receipt or forwarding an email that has an invoice. Pro tip: have your warehouse or supplier email their invoices directly to your accounting app. Connect your bank and credit account accounts to your software so that you can sync you information with bank feeds. Start to create rules and memorize transactions so that the software can automate the process for you. Last, be sure to record expenses not captured by your app, and learn how to post deposits from accounts receivable and direct sales.
Though recording can be automated, it is the heavy lifting of bookkeeping. If that information doesn’t make its way to the accounting system, then there is no accounting. Plus, you can’t move on to step two. After you’ve recorded the transactions in your accounting software, it is important to reconcile your accounts to what your bank and credit companies says that you recorded.
Reconciling can be accomplished very quickly when you take the time to record your transactions accurately.
Because of bank feeds, you can “match” your bank transactions with the transactions captured by your fancy app, and at the same time complete the reconciliation as the days go by, automatically. Grab your bank statement at the end of the month, punch in the date and ending balance, and the program will reconcile your accounts for you. Now that you have a process, and you are starting to feel good about the work you’ve accomplished, it’s time to review your work.
Reviewing is where you pull up reports, and take a look at the accounting as a whole.
You want to make sure that the expenses and income items are going to the right accounts, that your profit and loss statement is accurately represented, and that your balance sheet accounts make sense to you. Compare your profit and loss statement to a previous period, like last month, or a previous year, like last month 2018 next to last month 2019. I like to look at my profit and loss statement over a rolling twelve-month period. This makes it easy to look for trends and consistencies in your accounting. If rent is the same cost every month, then the expense account, rent, should have the same dollar amount in month after month.
Once you’ve checked your work, you can start to analyze your financials. Take a look at the margins. What does the direct cost of doing business mean for setting your prices, and assuring that you’re covering administrative expenses as well?
Take the three R's of bookkeeping and implement them into your business.
Not doing so will cost you time and money. Or as Ken Goodman says, “live a wasted life.” By not having an accounting system in your business, you will waste time chasing your tale. It will be difficult to make long term decisions, and you will fail to know that the initiatives that you undergo in your business are effective.
Running a business without knowing your numbers is complete chaos.
This routine will help you decode your books, and it will get you in the mindset to ask questions about your business. Becoming informed about your financial accounting will lead to better decision making and higher profits. When you do, you’ll have peace of mind, you will feel empowered and confident, you’ll identify way to earn higher profits, and enjoy an almost automated process through consistency and routine.
When you get bogged down with your accounting, simply remember Record, Reconcile and Review!
Call us at (559) 202-3300 to get your own 3R plan. We’ll get you started and make it easy for you.