Bookkeeping. Love it or hate it, it is the financial backbone of your business. How often should you handle this task to get a full financial health report?
A BUSINESS BOOKKEEPING SHORT STORY
A few years ago, while I was working at the sale barn, I handed a gentleman a check through the office window for a few cows he had sold that day.
“Damn. I made a lot of money,” he said, pushing his cap back from his brow.
For whatever reason, his statement caught me off guard.
“How do you know that?” I asked him. He had a confused look on his face.
“Because I have a check,” he replied, holding up his freshly printed check.
“Anyone can cash a check. How do you know you made money?”
Needless to say, my statement hit a nerve.
But, it is a very valuable question: How do you know you made money?
I tell this story all the time. It is the reason I started Texas Farm & Ranch Solution, LLC. Hidden between the dollar signs are several lessons to be learned in your operation’s bookkeeping. But, checking on your books once a year is not the path to profit.
You are the CFO
Let’s take a quick quiz: What type of person are you?
Do you store your receipts in a busted up box? Are you diligent in keeping things organized, but not on top of your books? Or, do you know every single piece of your accounting puzzle?
I’ll be the first to admit I have been all of these people. Bookkeeping tasks seem so minimal compared to the other things you must do on a daily basis. Even if you hire your bookkeeping service out, you need to know your numbers daily.
Who has time for that?
This is a quick reminder for you: You are running a business. Do not allow your business to run you.
With all of the other hats you wear for your business, you need to always be wearing your Chief Financial Officer hat. Even if you hand your tickets off to someone else, you need to constantly be knowing what is going on with the business’ financial health.
Most people take a good look at their books at, you guessed it, tax time. Too much time and money pass if you use this approach. You cannot make solid business decisions when your data is several months old.
Bookkeeping is Educational
Checking a checkbook balance will not give you a full picture. Your charge accounts and income will vary daily. Keeping a close eye on the expenses you use most often can help keep you from overpaying on a product. Cutting expenses can help to increase your profit.
For example, if you started the year planning to raise replacement heifers for sale, you will have a frequent feed bill. Once you start to see how much the feed is costing and how frequently you are feeding them, a few things can happen:
- You realize your budget may not be able to handle a replacement program
- Your estimated profit margin may decrease
- Shopping for competitive feed pricing is now an option
- A closer evaluation of your program may be in order
Let’s say you didn’t run the numbers on your replacement heifer program until the following year. You feed up your heifers as you intended to do, and then sold them at the price you felt was fair.
How do you know your replacement heifer program was worth it?
You don’t know.
This is why “You can’t make money in the cattle business” is such a frequently heard statement. You could be putting your operation into debt without even knowing it.
Aside from spending money on frequent expenses, there are going to be major purchases you will want to make. Budgeting and bookkeeping go hand in hand.
Making a point to keep tabs on your spending and income will help you forecast for purchases like equipment, herd expansion, and custom work costs. Online programs like Quickbooks or Xero can help get your business organized.
Managing your profit and loss will help to fund these purchases more smoothly. And, staying on top of your numbers will help you see if you can truly afford it.
Tax time is the most dreaded time of the year. It even beats family dinners with the in-laws during the holidays.
Why do most people hate it?
They hate it because they are overwhelmed and underprepared. The hardest part of getting ahead is getting started, so just start. Find the program that works for you. I prefer QuickBooks but it does take a little skill to get it started. A spreadsheet is perfectly fine, too.
Not tech-savvy? That’s okay. Use a ledger journal or notebook.
The point is, just get started with a system you will use, and others will understand. Unless you file your own taxes, your CPA will need to know where your numbers are coming from. They may even have program recommendations for you.
When tax time comes around, you can have everything done without spending precious hours at a time.
Make it a Daily Task
How often would you allow your animals to go without food? You wouldn’t. Without nourishment, they will not grow.
Treat your books the same way. Once you have your initial set up, the rest will be simple data entry. Gather up your tickets and checks every day, and enter them into the appropriate categories. You will soon find a time that works best for you, but make it a habit to do it.
If this is something you don’t have a skill for, you need to invest in a bookkeeper and a notebook and paper. Every day, you can write down your expenses and incomes. Your bookkeeper will not know every step of the plan you have to grow your business, so it is important that you are still aware of your numbers.
Every week, your bookkeeper can send you a detailed profit and loss statement. Make it a point to review it weekly. This will ensure you are staying consistent with the numbers they have.
Your bookkeeping is as important to your business as you are. Sure, it will run without checking in on it, but why slow down your growth potential? Having your income and expense in hand will be the fuel to your potential profits.
Keep this statement in mind: Anyone can cash a check, but are you making money?
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