One of the reasons I love Profit First is that it allows business owners to manage their cashflow and improve their profitability without the need for complex financial reports. But Profit First can’t do all the heavy lifting! You need to give yourself the best possible chance to succeed with the system. One of the ways you can xdo this is through maintaining accurate, up-to-date business records. This is where your bookkeeping process comes into play.
Given that I spent a lot of time last week providing software implementation and training I thought this was a perfect opportunity to cover off on some general areas where software can help you keep better records.
I know you hear this all the time from your bookkeeper and/or accountant, but we harp on about this stuff for a reaso…I promise! Keeping accurate, up-to-date accounting records is crucial. Business decision making requires data and your bookkeeping is a big part of that. In fact, I doubt you could find a single business that is truly successful in the long term that hasn’t treated their accounting data as a priority.
Ok, now that I’ve had my accountant rant lets be honest..bookkeeping is really boring, right? Most days you’d rather vacuum the office and scrub the toilet than sit down and do your books. I get that. Which is why it’s so important to have the right bookkeeping system in place. The system must be:
- Easy to maintain – if it’s overly complex to use you will get lost and make mistakes..or worse, you’ll just avoid doing it altogether;
- Affordable – Price is relative, focus on value. You can use free systems like Wave but are they accurate? Do they provide everything your business needs (for example, payroll)? Will they grow with you?
- Connective – It’s important to have a bookkeeping system that will integrate with external platforms. The business world is shift and the ability to export/import data for analysis is more crucial than ever.
When it comes to bookkeeping systems you should always choose the option that works best for you. Having said that, if you are looking for a change and not sure which way to go I’m firmly on team Xero! The system has been designed from the ground up to be far more user friendly for people who aren’t native to accounting and bookkeeping. Myob and Quickbooks are scrambling to offer viable alternatives to Australian customers but so far my experience with them has left me less than impressed.
Expense Capturing System
The rise of cloud-based accounting systems like Xero that are driven by data sent directly from your bank has resulted in a lazy approach to bookkeeping. What do I mean by that? Many business owners (and professional bookkeepers) wait for bank data to be imported into the accounting system and then code each line to an income or expense account. This is what accountants call ‘cash accounting’. The bookkeeping system is only recording data from bank statements which means it’s only picking up payments received and made by the business.
What’s wrong with that approach and why did I call it lazy? The issue is that it only tells half of the story.
- Your accounting records shouldn’t just show how much income has been received from customers. You need to know how much is still receivable from them and how far overdue it is;
- We don’t just want to see how much money you’ve spent on various expense items. You need to know how much you still owe each of your suppliers and when the payments are due.
Unfortunately, cash accounting falls short here. Thankfully most modern bookkeeping programs will allow you to generate invoices directly from the platform so that takes care of the ‘how much do our customers owe us’ side of things.
What about how much we owe? This is where expense capturing apps like Hubdoc and Receiptbank come in. These relatively inexpensive programs link directly to your bookkeeping package. They allow you to easily import electronic copies of supplier invoices and ensure you have a clear picture of how much you owe.
They are literally as simple of taking a photo with your smart phone via their app. The software scans the image and pulls out the relevant data. You check it to ensure it’s accurate before exporting the data and the image to your accounting system.
As well as being a time saver these programs also allow you to throw the paper copy of the receipt away. The electronic version is sufficient for ATO audit purposes.
Right now I’m loving Hubdoc. I was previously using Receiptbank but switched all my internal procedures over to Hubdoc a couple of months ago. Not only does Hubdoc help you maintain your accounts payable and store digital copies of all receipts it also has an automatic ‘fetch’ feature. Fetching allows Hubdoc to grab copies of your bank statements directly from your bank. This means your accountant and bookkeeper will stop asking for them.
For the Best Result – Outsource!
I know many business owners ‘can’ do their own bookkeeping and in the early stages of Profit First an easy cost to cut could be your bookkeeper. My question to you is this – Just because you can do your own bookkeeping does that mean you ‘should’? In most cases the answer is no. Bookkeeping is not part of your core skill set. It can be quite time consuming, especially if you don’t really know what you are doing. I’d prefer to see most business owners find a good quality, Australian based bookkeeper to look after their records. In the long run you and your business will be better off if you spend the hours you would have wasted on bookkeeping focused on business development activities. Do what you do best and let a professional help with the stuff you’re not so good at.
A quick side note – yes, i did say ‘Australian based’ bookkeeper. I’ve had many clients use very cheap offshore options for bookkeeping. The results have been terrible and in some cases I’ve completely deleted the file and rebuilt it from scratch because it faster than trying to fix the thousand’s of errors made.
How will these systems help Profit First?
Good business records are a huge help in the Profit First process. Particularly in the initial set-up phase and during any future troubleshooting.
- Initial Set-up: great business records make the process of calculating your Current Allocation Percentages (CAPS), setting your initial percentages and starting the process of cutting costs so much easier;
- The moment something goes wrong: For example, you realise your Opex account is starting to fall short of paying your bills. Having accurate, up-to-date business records will allow you to undertake an analysis of your spending immediately with confidence that the data you are using is correct.
Read our comprehensive review of Profit First here
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