#13 - Stop Looking in the Rear View Mirror: How to Do Effective Accounting
Nov 27, 2023
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Learn how to do effective accounting that provides real-time insights into your business' financial health. Discover the importance of understanding metrics like customer acquisition, advertising effectiveness, and profitable activities. See how a good accounting system can steer your business in a profitable direction by offering critical information like sales levers and growth strategies.
Effective accounting provides real-time insight into business' financial health beyond tax purposes.
Analog bookkeeping can be enhanced by transitioning to digital tools for efficiency and accuracy.
Maintaining simplicity while ensuring accuracy in bookkeeping practices supports informed decision-making for business growth.
Deep dives
Importance of Getting Professional Licensing
Getting a master electrician's license is crucial for starting an electrical home services company. Although starting a handyman business without a license is an option, becoming a licensed electrician should be a priority to expand services in the future and establish credibility in the industry. Pursuing licensing is essential to offer specialized electrical services and grow the business successfully, ensuring compliance with legal requirements and building a strong reputation in the field.
Benefiting from Contract Engineering Work
Opportunities to contract for electrical design work with an engineer can provide valuable experience and income. Engaging in contract work can help you further develop your skills, expand your network, and gain exposure to diverse projects. Leveraging these opportunities can enhance your expertise and industry knowledge, paving the way for future growth and potentially transitioning to collaboration in a larger home services company.
Analog vs. Digital Bookkeeping
While analog bookkeeping can be a feasible way to track income and expenses using a ledger book, transitioning to digital tools like spreadsheets or accounting software offers greater efficiency and accuracy. Embracing digital solutions allows for reliable financial tracking, simplifies record-keeping, and facilitates financial analysis. Using a combination of traditional and digital methods can enhance bookkeeping practices and provide a more comprehensive overview of business finances.
Balancing Simplicity and Accuracy in Bookkeeping
Maintaining simplicity in bookkeeping processes while ensuring accuracy is essential for effective financial management. While utilizing basic ledger books or spreadsheets is a practical start, integrating checks against bank balances and adopting double-entry accrual accounting principles can enhance the reliability and completeness of financial records. Striking a balance between simplicity and precision in bookkeeping practices can streamline financial tasks and support informed decision-making.
Navigating the Path to Business Growth
Navigating the journey towards business growth involves securing professional licensing, leveraging contracting opportunities, embracing digital bookkeeping tools, and balancing simplicity with accuracy. Prioritizing continuous learning and skill development, along with adopting strategic financial practices, can lay a strong foundation for future expansion and success in the electrical services industry. By combining industry expertise with effective financial management, you can position yourself for sustainable growth and professional advancement.
Too many business owners use accounting to essentially stay out of jail, or at least out of trouble with the IRS. They close their books once a year so they can file their taxes, then move on, having learned little of value about the business' financial health in the process. Everything they learn by this accounting process is late, by months and months, usually far too late to do act on. Other business owners might be better, closing their books every quarter, or even monthly, but the problem remains -- they are always looking in the rear view mirror while trying to steer the ship forward.
Mitchell and Scott outline what an effective, useful accounting system looks like. It gives a business owner close to real-time information about the health of the business -- not just the cash flow and the operating income, but things like customer acquisition, number of proposals compared to closed deals, advertising effectiveness, and so on. A good accounting system is like the instruments on an airplane, and the business owner is the piliot. The accounting system is the business "console," with all the critical information for the business owner to steer things in a profitable direction. It also offers deeper insight into the business model. You can learn which levers move the needle on sales, and what actions you can take to grow when sales begin to slow. You can learn which activities are the most profitable, and which ones need to be discontinued. All of these things emerge from an effective accounting system.
That said, most business owners are experts in their field, not in accounting. An excellent bookkeeper can take all of this off your plate and give you the real-time insight you need, while saving you tons of time in the process! Visit Better Bookkeeping for the ultimate solution for small business owners:
