If you already have a system to keep all your bank and loan and credit card statements organized, I have to applaud you. If you’re like most, non-accountant small business owners though, your statements are probably dispersed between your desk, the glove box in your car, your kitchen table, and that file folder you created when you first started.
Believe it or not, the fact that your financial information isn’t organized is adding to your stress. It may be a low-grade worry that cringes every time you think about trying to get things together for your tax person at the end of the year. Or it may be something that keeps you up at night because you really don’t have a solid grasp on what’s going on with your finances.
As a consultant, here is the process I go through when I get a small business organized.
Order Supplies. Unless you have a paperless office, I suggest that you start with a two-inch (2″), three-ring binder and a set of monthly tabs (Jan-Dec). (You can always get a wider binder if you need more room.)
Create a Checklist. Next, you’ll want to setup a worksheet with your accounts listed down the left and the months listed across the top. This typically looks best in a landscape orientation. You’re welcome to download and customize the basic Excel spreadsheet I designed for this.
Reconcile Your Accounts. If you don’t know how to reconcile your accounts or you don’t think it’s necessary, please visit my walk-through post. Once you’re done reconciling the account, staple the reconciliation report(s) to the front of the statement, and file them in the appropriate month, based on the statement ending date. For example, your bank statement that ends June 30, 2018 and your credit card statement that ends June 18, 2018 will both be filed under the June tab in your binder. (Yes, you also need to reconcile your credit cards.)
Run Your Financial Reports. Once all your accounts are reconciled for the month, go ahead and run the basic financial statements:
- Profit & Loss Report (also known as an Income Statement)
- Balance Sheet
- Statement of Cash Flows
File these statements in front of all your account statements and their reconciliation reports.
Review Your Financial Reports. Take a look at your financial statements and choose at least a few numbers to keep a close watch on. These are called Key Performance Indicators (KPIs) and they can form the basis for business goals. For example, if you’re in a manufacturing industry, depending on your field, you might want your gross profit (total income minus cost of goods sold) to be about 40-60% of your total income:
Income: $10,000 (100% of Income)
Cost of Goods Sold: $4,000 (40% of Income)
Gross Profit: $6,000 (60% of Income)
You also might want to keep an eye on discretionary expense accounts like “office supplies” and “meals”.
Relax.Once you get used to the process, this might only take you an hour a month to complete. The payoffs are well-worth the time investment. First of all, you’ll have a much better idea about how you’re doing, financially. Next, you’ll be ready to do your taxes… early! Also, you will have all your account statements in one place if anyone ever needs to see them (banks, loan officers, auditors, etc.). And finally, you’ll eliminate the stress associated with being financially disorganized.
That’s it! If you need help, it’s literally what I do for a living. Drop me a line and I’ll get in contact with you as soon as possible.