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The Bank Account

The Bank Account

Do you know how much money you’re making?

Seems like a simple enough question, but you may be surprised how many business owners we come across that can’t answer this question to any degree of specificity. This is easily answered by the employed, who can spout off their salary, benefits, and 401k matching plan without thinking about it, but not business owners. No, it’s just not that simple.

By the nature of how we make our money as entrepreneurs, we have two major things to worry about that the employed do not – costs to cover before we see a dime in our pocket, and a level of financial risk reminding us that income is never guaranteed.

I can tell a lot about a person’s business by how he answers this question. I can tell if his accounting game is tight, if he knows his margins, and can gauge his level of frustration in his current accounting solution (or lack thereof). I know if finance is his forte, or an afterthought.

One of the most common responses I hear is “I check my bank account, and as long as the balance is going up, I’m happy”. There is a simple wisdom in this response. What I hear is “I run a business, and don’t have the time to go over detailed reports. I need to know enough to make sure I’m covering my costs and then some.”

This may be a dig against the detail orientation of the typical accountant, but I get it. What use is sinking money into an accounting system if it can’t get you the base information that you need? Sometimes, accountants miss the mark. This is akin to the difference between a handshake deal and a 20 page contract riddled with legalese. The former is the easier, more preferred way to do business, and the latter is a safeguard against being burned on the deal. Both have their place.

What we are really talking about here is identifying the needs of the end user properly. In our world of small business and startups, there are typically three distinct end users – the decision maker (business owner or operations manager), the CPA (and by extension all forms of taxing entities), and financiers (bankers or otherwise).

While you as the decision maker want an “executive summary” of how well your company profited last month, your banker’s underwriters are going to want a full set of financials if you want a large capital improvement loan. In the same way, your CPA will want as much information as possible if she is to set you up with an aggressive tax strategy.

One of the more awesome benefits of cloud accounting software is flexibility. Xero and QuickBooks Online (QBO) both would prefer a simple chart of accounts, without dozens of extra sub accounts. This helps keep financial statements concise and focused on top-level figures.

If you want more detail – for example a breakdown on the profit of each different department or product line – you can set up Tracking Categories in Xero or Classes in QBO. Note, this is something that you would want to set up at the very beginning, and have your accountant’s help on. Once the structure of your books is set, it can be a real time and money suck to switch.

You really can get the best of both worlds here – at a glance reporting that is super user friendly to non-accountants, and detailed reports for complex business undertakings such as formulating an aggressive tax strategy.

It is cheaper than ever to run a robust and dynamic accounting solution for small to medium sized business. If you are stuck on the question of “how much money do you make?”, it may be time to have a talk with your accountant.

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