Feb 23 2009
Back Of The Envelope Accounting Can Be Dangerous
Know what you owe
Many small business owners fail because they rely on “Back of the Envelope” accounting.
That’s a fancy way of saying we sort of know what the bank balance is, but we haven’t reconciled the books or taken stock in quite some time.
If you rely on a daily online bank balance to tell you your bottom line, you may find that a large check, written weeks previously, finally cleared – on the same day as your payroll. Your $7,000.00 balance is suddenly in negative territory. The checks bounced. Your most valuable salesperson and your most important vendor are both screaming mad.
There are plenty of things more pleasant than bookkeeping (root canal, for instance) – but there are very few things more unpleasant than an overdraft notice and a slew of bounced checks.
Avoid them – and the sky-high associated fees and charges – by taking a few simple steps:
- Keep an up-to-date check register.
- Know what is coming due (taxes, utilities, suppliers) before the bills hit your desk.
- Have a realistic budget – even if you can only project sales a month in advance.
- Order inventory based on advance sales or past performance – not on your fondest dreams.
- When all else fails, hire a freelance bookkeeper.
None of these steps will guarantee business success. But they are a simple way to start tracking your finances systematically. And that’s the first step to long term profitability.
Next in this series: Sweat Equity
Photo by by miguelb Released under Creative Commons License
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