SEARCH, INDEX, UPDATES, CONTENTS, bookkeeping - what information do you need?
Have the right information
Successful business people understand the finances of their business. A few
people achieve success in business by luck, by trial and error, or by being in a
niche market with no competitors, but most businesses operate in a competitive
and changing market where making the right decisions depends on having the
right information. Have you ever made a wrong decision on the basis of
incorrect information?
Anywhere, anytime
With computer technology there is no reason why important information should
not be readily available. There are now a number of online accounting packages
which make your accounting information available virtually anywhere
at anytime, via your laptop and mobile phone card, though that may be more
than you need.
Recording financial transactions
Using an imaginary new company which buys and sells watches, we will try to
help you decide what records you will keep and how to keep them. The
financial results that are prepared from your records should be the same whether
you keep 'incomplete records' or 'double entry records'.
While we suggest that any new business should invest in a computer and accounting software at the very start of the business, we believe it is easier to understand any computer account package if you work know the basic principles of manual bookkeeping in a full double entry set of records first. Although accounting software is designed to be as easy as possible to use, it is also a good idea to read the instructions, though many people fail to do so.
As well as the books that you maintain, you must keep supporting documentation such as invoices and petty cash vouchers.
A manual double entry set of records could easily be maintained for a small (or not so small) business. This is the system that the biggest companies used before the invention of computers, and it can be accurate to a penny.
However, many small (and many not so small) businesses maintain adequate records in an analysed cash book. An invoice based full system records and analyses expenditure when the invoice is received and records the payment without analysis, whereas an analysed cash book only records the payment and analyses that payment. Using this system therefore requires another means of knowing what has not been paid. That can be as simple as filing unpaid invoices separately until they are paid.
Recording other information
In order to monitor the quality of service that you are providing to your
customers, you may also wish to establish some Key Performance Indicators
(KPIs) which are not part of your financial records.
Examples might be the response time to enquiries, the time it takes you to return telephone
calls, the number of times the telephone rings before your receptionist answers,
what percentage of enquiries your sales people convert to actual sales, how many
days credit your customers take, how many days credit you take, customer
retention rates, average selling prices, unit volume per order - the list is
endless. However, it is pointless recording information that no-one is going to use.
Only measure what you need to manage.
As well as keeping your own records about the service you provide to customers, will you enlist the help of your customers to improve your performance? We attach a questionnaire with a freepost reply envelop to every bill that we issue at the completion of any work. A customer who complains is a valuable asset to your business because they allow you to correct any mistakes or misunderstandings. An unhappy customer who does not complain will probable take any future to your competitor.
Budgeting
You may not commit your personal or domestic budget to paper, but whether you
consciously realise it or not you do prepare a personal budget. Arriving
at a bus stop without the bus fare in your pocket, would not be good budgeting!
You might be able to prepare a budget for your business in your head, but you will refine and improve it by writing it down. A spreadsheet such as Excel is a wonderful for considering a range of possibilities. A budget is a prediction about the future, and is guaranteed not to be accurate. On a journey, there may be many things which changed your original planned route, but you revise the route as many times as necessary in order to reach your destination. Similarly a budget should be updated at least every three months, if not monthly.
You will want to design your financial records to enable you to extract some historic information as a basis of your budgets.
Business plan
If the budget does not predict an adequate level of profit, then you will
need to revise your business plan. You do have a business plan, although
many people never do commit that to paper. If you have not already done so, try
writing down your business plan. It will clarify your thoughts for you, and
allow you to recognise what can be changed for the better.
See also
Full double entry set
of books.
Analysed cash book.
Confidence in your records.
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 2 September 2006.