Taking The Stress Out Of Financial Management
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Taking The Stress Out Of Financial Management
A lack of understanding about the numbers side of your business can cause you tremendous headaches. For a case in point, let me introduce you to one of my new clients who I’ll call John. John is a contractor who has been in business for more than twenty years.
By: Caroline Jordan
A lack of understanding about the numbers side of your business can cause you tremendous headaches. For a case in point, let me introduce you to one of my new clients who I’ll call John. John is a contractor who has been in business for more than twenty years.
By: Caroline Jordan
He hired me to come in and clean up a mess caused by 1) his lack of knowledge about small business finances and 2) his reliance on marginally competent bookkeepers.
It’s a classic small business scenario. A business owner who doesn’t understand the financial side of his business hires a bookkeeper to handle “all that”. But, because he doesn’t understand the financial side of his business, he doesn’t know what to look for in a bookkeeper and he has no way of knowing whether the bookkeeper is doing a good job.
This is the perfect set up for all sorts of unpleasant consequences including inaccurate financial records and tax returns, missed or inaccurate filings of mandatory forms and payments, useless financial statements, lack of information about how the business is really doing, and a potential for fraud and embezzlement. Scary, huh?
So, what’s a business owner to do? Here are some tips to help you stay out of trouble.
1. Understand that the numbers side of your business is a critical factor in your quest for a successful and prosperous business. You can hire someone else to do the work but you still need a basic understanding in order to run your business.
2. Know the difference between hiring a bookkeeper and hiring a financial professional. A good bookkeeper will understand how to accurately enter information like payables and receivables, process a payroll, make collection calls, and reconcile a checking account. All those are important and necessary tasks. Notice I call them tasks. Bookkeepers are task oriented. A professional finance professional may also perform these tasks but their real value is in taking the information that has been entered and translating it into knowledge about your business and then communicating it to you in a way you will understand. Financial managers are analysis and knowledge oriented. Two different ways of looking at your financial information by two different professionals.
3. Sometimes you can find someone who can perform both sets of competencies but individuals like that are few. Generally, it is more cost effective to have a competent bookkeeper perform the task oriented pieces of the financial puzzle-entering vendor and customer invoices, receiving payments, processing payroll, etc. and then use a financial manager to help you understand what the numbers mean.
4. A financial manager can be someone like your CPA (certified public accountant--they’re not just for taxes anymore) or you can use a CFO (chief financial officer) who specializes in working with a number of different smaller businesses. Usually you can get the information you need by hiring someone to look over your financials once a month, do some analysis and report back to you on trends and operating efficiency, and give you solid advice on how to improve your business. Be sure to find someone who understands the ins and outs of managing cash flow since this is such a critical challenge for small business owners.
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It’s a classic small business scenario. A business owner who doesn’t understand the financial side of his business hires a bookkeeper to handle “all that”. But, because he doesn’t understand the financial side of his business, he doesn’t know what to look for in a bookkeeper and he has no way of knowing whether the bookkeeper is doing a good job.
This is the perfect set up for all sorts of unpleasant consequences including inaccurate financial records and tax returns, missed or inaccurate filings of mandatory forms and payments, useless financial statements, lack of information about how the business is really doing, and a potential for fraud and embezzlement. Scary, huh?
So, what’s a business owner to do? Here are some tips to help you stay out of trouble.
1. Understand that the numbers side of your business is a critical factor in your quest for a successful and prosperous business. You can hire someone else to do the work but you still need a basic understanding in order to run your business.
2. Know the difference between hiring a bookkeeper and hiring a financial professional. A good bookkeeper will understand how to accurately enter information like payables and receivables, process a payroll, make collection calls, and reconcile a checking account. All those are important and necessary tasks. Notice I call them tasks. Bookkeepers are task oriented. A professional finance professional may also perform these tasks but their real value is in taking the information that has been entered and translating it into knowledge about your business and then communicating it to you in a way you will understand. Financial managers are analysis and knowledge oriented. Two different ways of looking at your financial information by two different professionals.
3. Sometimes you can find someone who can perform both sets of competencies but individuals like that are few. Generally, it is more cost effective to have a competent bookkeeper perform the task oriented pieces of the financial puzzle-entering vendor and customer invoices, receiving payments, processing payroll, etc. and then use a financial manager to help you understand what the numbers mean.
4. A financial manager can be someone like your CPA (certified public accountant--they’re not just for taxes anymore) or you can use a CFO (chief financial officer) who specializes in working with a number of different smaller businesses. Usually you can get the information you need by hiring someone to look over your financials once a month, do some analysis and report back to you on trends and operating efficiency, and give you solid advice on how to improve your business. Be sure to find someone who understands the ins and outs of managing cash flow since this is such a critical challenge for small business owners.
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Caroline Jordan, MBA, is a veteran small business owner, accountant, consultant, trainer, and author. She is the owner of The Jordan Result, a company specializing in developing real world, practical resources to help small business owners improve cash flow and business operations. She is the author of Stop the Cash Flow Roller Coaster, I Want to Get Off! and Strength in Numbers. For more tips and articles to help your business succeed visit www.CashFlowRollerCoaster.com.
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