Can I Trust the Numbers in my Business?
Every financial expert you encounter is going to tell you that you have to “know your numbers.”
The real question is: “Do you trust your numbers, and can you use them to make informed decisions in your business?”
As a CFO, I know financial statements overwhelm a lot of small business owners. I’ve seen it over and over. One big obstacle to seeing financial reports as useful is simply when the numbers don’t seem “right” so they’re not trusted.
I get it, which is why we created Meaningful Money Essentials to empower you to find meaning in your numbers and rely on them to make better decisions in your business going forward!
The good news is, you an start with this guide.
As a small business owner, how do you know if your books are giving you meaningful numbers?
Well, meaningful numbers are:
Current – They are up to date.
Accurate - They include all revenue, expenses, and other payments or purchases.
Organized – Your transactions are categorized in a way that makes sense and gives you information that is useful to you in making decisions.
Connected to Strategy – The numbers and reports are tied to your top goals and strategic objectives.
Essentially, your numbers are meaningful and can be trusted when you have quality financial records in place.
You can be confident that your records or “books” are solid by looking at the underlying data in your bookkeeping program and making sure that it is correctly entered up to the most recent time period.
By definition, financial statements and accounting always look back in time to show how the company actually performed.
This means that the information in your financial statements is all based on events that have actually happened and that you have proof (in the form of receipts, statements, invoices, bills, and sales records) for each transaction.
Simply put, you know you can trust your numbers if you can verify that each transaction has been recorded properly and that it matches with each record of income earned and money spent in that time period.
Start Where You Are Today
Depending on what stage your company is in, your books may be regularly maintained and be the responsibility of a bookkeeper or an accountant, OR your books could currently be of low priority for you in managing your business.
No judgment here! Whatever stage you are in as a small business owner, you can learn how to get your numbers to work for you AND not be hard on yourself for whatever missteps you may have made in the past.
The important thing is not to dwell on what has already happened but to continue taking steps forward. And that’s exactly what we’re doing today as we make sense of your numbers! The sooner you start, the faster you’ll have reliable and clean financial reports.
And if you want more help, jump into Meaningful Money where we dig in deep to help business owners grow and profit.
Five Accounting Activities to Verify so You Know You Have Clean Books
There are five basic accounting activities that you can review to assess how reliable your financial statements are.
#1 Review Sales Activities
Sales activities are the cornerstone of your business. And it is essential that they are tracked and recorded accurately for you to get meaningful numbers from your business activities.
Sales transactions in your bookkeeping tracks exactly how your business generates revenue. To be confident in your income reports, you want to be sure that all of these activities are recorded, categorized, and accounted for each month.
How can you test if your sales activities are up to date?
If you have a small number of sales transactions each month, you can run a report of sales by customer to see that invoice or sales receipt has been entered for each month.
If you have a large volume of sales, then you can compare the total sales on your financial reports to your reports from your Point of Sale (POS) system to see if the numbers match up. If you find large differences, then make an effort to find any missing or duplicate transactions until you get the two sources to match (aka reconcile).
#2 Dig Deep on Vendor Activities
Vendor activities are just as important as sales. Vendor Activities include all the costs related to managing your business — which can range from software subscriptions to marketing expenses to ingredient costs to office supplies.
Expense tracking is probably the number one activity people associate with bookkeeping and it is, in fact, a major part of the accounting activities in your business. To get expense tracking right, it's important to decide in advance which expenses will be booked when you get a bill from your vendor and which will be entered as expenses when you pay for the product or service.
Entering the bills as they are received, and then marking them paid as the transactions hit your credit card or bank account is the more precise way to track costs with your most important vendors. But it is certainly not required for things like a monthly software subscription. That can be recorded when it hits your credit card or bank account.
To check vendor and expense activities:
Look at a report of expense by vendor each month to see how much is being spent, and how it is being categorized.
If you do enter bills when they are received, you should always look at an aging report of Accounts Payable – this will show you the bills that still need to be paid, and if any are past due.
Regardless of how expenses are booked, you want to make sure that all transactions are being recorded to the correct type of expense, and with the appropriate level of detail.
#3 Stay on top of Contractor & Payroll Activities
If you have people supporting your business either as a contractor or an employee, it is obviously important to pay them for their work each month.
It is also important that you keep a record of these payments to know where your business stands and to make informed decisions when it comes to hiring or expanding your team.
Ensure all of your contractor invoices have been recorded and paid each month. And ensure you run payroll monthly or biweekly, depending on the structure of your business. With payroll, each payroll should record in detail the taxes collected and paid as well as the cash paid out to employees. Again, you can match up the bookkeeping transactions to your payroll report to make sure everything is recorded correctly.
#4 Always Complete your Reconciliation Activities
With most banking online these days, checking on the status of your accounts has never been easier. It rarely takes more than a few taps or keystrokes for you to log in and see what money is going in and out.
Regardless of how often you check on your bank accounts, once a month, you or your bookkeeper should make sure all of your bank transactions in your bookkeeping software match up with your bank statements. Reconciling serves two purposes: By reconciling the bank and credit cards statements to your bookkeeping you can ensure that
Each transaction is booked (nothing is missing or left uncoded). This ensures that all of the cash going into and out of your business is actually part of your financial reports.
Any errors or duplicates that may have occurred are found and taken care of as quickly as possible. Because errors do happen (sometimes due to human error; but also due to computer errors) and when they do, cleaning them up while you can still remember what happened is much, much easier than going back months later.
#5 Keep an Eye on Other Accounting-Related Activities
These activities will vary depending on your particular business but could include checking in on loans, tax obligations, etc.
Here are some examples of activities that would fall into this category:
Make sure all tax payments/payables/receivables have been recorded and reconciled.
If your business has assets on the balance sheet: review all fixed assets and record any related depreciation expense.
If you have business loans, ensure all loan balances are correct and reconciled to the latest statement received from the lender.
Make sure interest on loans is booked as an expense while principal payments are booked to reduce the loan balance.
All of these activities should be done at least once a month to keep your books up to date and your numbers trustworthy.
It probably feels like ALOT - since we just condensed an entire accounting degree into a blog post! But honestly, like most things in life, it gets easier with time, and with support.
And you 100% do not need to do this alone.
Ready for More Support in Making Sense of Your Money and Books?
Join Meaningful Money Essentials to be a part of a cohort of small business owners ready to step up their financial game in 2023!
In 3 weeks, this course will give you the skills you need to understand your business finances and gain control of your cash flow.
You'll learn from 2 finance professionals who have worked with over 100 companies on accounting, coaching and business growth. In the course, you'll gain three essential skills:
Use our checklist and training to review your bookkeeping to make sure it is all solid.
Learn to understand and question your financial reports so they can make sense forever after.
Create and use a 13-week cash plan that works for you and helps you see how your decisions today will affect your bank account next month.
You'll also be among the first to gain access to our community of social-impact business leaders. Take the first step and join our waitlist today!