Why Good Bookkeeping Could be Key to Growth?

Is your business growing? If so, great, but if you’re not updating the way you manage the books, you could be in for a shock.

It’s a much over-used statistic – half of all startups will fail within the first five years. What’s less talked about is that many of those businesses which fail will be profitable and doing good business. The reason they fail? They haven’t been keeping an eye on the numbers and run out of cash.

Growing pains

A growing small business is a bit like a person, it goes through various levels of maturity. To begin with it’s an infant with simple needs. You aren’t spending or bringing in too much. Doing the books will be easy – you might do them yourself or employ a part-time book keeper.

As it grows it becomes an adolescent and things get tougher. You recruit more people, your revenue grows, and your expenses become much more complicated. Doing the books becomes much more of an undertaking and is difficult to get right.

At the most basic end of the scale, this will take time and distract you from more worthwhile pursuits, such as gaining more sales, driving growth or thinking about your business strategy. As an entrepreneur you’ll have a number of different tasks you can do: some will be low value (let’s call these the $12 an hour tasks) such as doing the administration. These jobs have to be done, but they don’t make much money for your business.

At the other end of the scale are the $100 per hour tasks – jobs like developing new contacts or gaining sales. If you’re doing too much of the former and not enough of the latter, you’ll start to tread water.

Trouble ahead

On a more serious note, failing to update your accountancy systems can cause mistakes which could land your business in hot water. It’s easy not to think about small expenses, or to forget about certain incoming bills when managing your financial planning.

As a result, what you see in your accounts starts to veer away from the real picture. We’ve seen examples of businesses which are not as profitable as they think or fail to bring money in quickly enough and find themselves experiencing a cash-flow crisis when the time comes to pay bills.

It’s a common problem with small businesses – income is volatile while expenses are fixed. Bills may go unpaid, business might drop off, but rent and taxes are unavoidable.

On the other hand, we’ve also seen businesses who find they are in a better financial position than they actually think. They believe they are running at a small loss, but a closer look at the numbers reveals they are making a slight profit. That’s great news, but if they had the right numbers in the first place, they may have made different business decisions which could have helped them grow more quickly.

This is what control of the numbers gives you. It helps you see where your business is and where it is going. It helps you solve problems before they become urgent and develop the best strategies for your situation.

Call in the experts

This is why many businesses outsource their accountancy services as they grow. This would give you all the advantages of an in-house accountancy team at a reduced cost. It ensures your accounts are accurate and up to date, it gives you a clear picture of the road ahead and helps you avoid an unforeseen cashflow crisis.

Most of all, perhaps, it frees you up from day-to-day admin to concentrate on what you do best: planning your business and pushing it onwards and upwards. Doing the books, therefore, might not sound too exciting, but it can be crucial to the future of your business.