Everyone in business wants to be strategic, but how can accounting be strategic? When you do your own accounting, you’re so busy keeping up with the accounting basics of invoicing, bill pay, and bookkeeping that you don’t have time to be strategic with your financial information. See some of the ways you can be strategic and why you don’t want to do this yourself.
In the previous article on Financial Discipline, financial reviews were identified as a starting point for understanding your business and making good decisions. Making strategic decisions involves real analysis of your financial statements and the underlying information they represent. Here are some questions to consider:
- Who are your most profitable customers?
- What product or service sales are growing or declining the most?
- Are your Costs of Good Sold growing or declining in proportion to your income?
- Are expenses increasing faster than income?
These are just examples of questions whose answers are contained in your financial reports (or the underlying transactions that they summarize). With good bookkeeping and proper analysis, you can get that information quickly. Are you able to easily get these answers for your business?
As you become more sophisticated, you begin forecasting your financials. Forecasting is built on the foundation of good accounting essentials (payroll, bill pay, invoicing, etc.), financial fundamentals (bookkeeping, expense management, etc.), and financial analysis. It also incorporates good managerial practices of sales pipeline management with related costs and expenses. Forecasting will help you create accurate budgets and plan your business wisely. Great businesses use forecasting to hire and spend wisely, plan for cash shortfalls or increases, and grow profitably (or with a controlled loss).
Cash is king! If you don’t know that already, you will soon. Cash management is built on many other accounting activities. Good bookkeeping, financial reviews and analysis are the tools for understanding your cash position. Solid accounting operations including invoicing, bill pay, payroll, and expense management are the primary levers for managing cash flow. Forecasting and budgeting are tools that give you an understanding of how expected future activity will affect cash balances. To do cash management right is to truly be strategic with you accounting.
Becoming strategic with your accounting and finances isn’t easy. Successful companies are strategic with their accounting. It can be as important as a good product, good marketing, and a great sales team. It is very difficult to be strategic if you are doing your own accounting in addition to other responsibilities in the business. Do you still want to do your own accounting?