Accounting may not be your favorite part of owning or managing a business, but everyone running a business should embrace it. Looking at your bookkeeping and accounting results, you can find key insights that will help you grow revenue, cut costs, and steadily increase profitability. During the busy holiday season, knowing what’s going on with your business finances is even more critical.
You don’t need an accounting degree or MBA to upgrade your small business accounting IQ. Here are five accounting tips to help you better understand your holiday profits and improve your business results going into the new year.
1. Update your accounting records monthly (at minimum)
Updated and accurate records give you the full picture. Otherwise, it’s like steering a cruise ship blindfolded. It may work for a while, but eventually, you’re bound to run into problems unless you run your business with your eyes wide open.
The standard schedule for many businesses to prepare and review financial reports is monthly. However, some business owners review performance more often to ensure they’re on track for revenue, cost, and profitability targets.
To speed up your monthly bookkeeping update, you can connect your business accounting software to your bank accounts, credit cards, and other financial accounts to automatically download transactions for your review.
Updating weekly or more frequently during the holidays helps you keep your finger on the pulse of the season’s results so you can make changes on the fly.
2. Identify your highest margin products and services
When you organize your accounting categories (similar to family budget categories) by product or service, it’s easier to quickly figure out where you’re making money and what isn’t working as well. If you lump all business lines into one revenue category, it’s much harder to determine which products do the most for your business.
Look for the highest margin percentage and highest margin contribution by product. Your most profitable products or services may be different from what you expect. If you double down on what’s working best, you’re setting yourself up for growth.
Putting your highest-margin products front and center and promoting cross-sales from related products or services can also boost sales. Someone already a customer could be ready to buy something else if you point them in the right direction.
3. Use accounting reports to find opportunities to cut spending
After you’ve taken time to build up your revenue, it’s time to take the axe to your expenses. Business owners often find a combination of ‘big wins’ where they can save a lot at once and smaller savings that add up over time.
Anything related to real estate, vehicles, large equipment, or staffing could be somewhere you find major savings with a single change to your business. After making adjustments, look for recurring costs you can trim back on.
If you can save $10 per month here and $100 per month there, it’ll quickly add up to thousands of dollars in business profits. Any recurring subscription paid by a card or bank account should be reviewed to ensure it’s still worth the cost. While business owners can easily spend, spend, spend, every dollar out the door is a dollar you’re not keeping.
Remember to keep track of every expense related to your business, as you can lower your business tax bill by deducting eligible expenses. Small business owners should keep track of receipts and invoices in the event of a future audit.
4. Craft a meaningful chart of accounts
The core of “accounting” is account. You can think of each account in bookkeeping and accounting as a budget category. Some make sense to track at a high level, while others may be worth tracking at a very granular level. Payroll, tax, and employee benefits are examples of potential accounts.
The default accounts in your accounting software are a helpful starting place, but you should feel empowered to add and edit. Tracking how you make income and where you spend most in detail gives you powerful insights to make the best decisions. Some businesses use sub-accounts for holiday advertising or other holiday-related financial tracking.
You can always update and change your chart of accounts over time. For example, if you sell two kinds of widgets and track them in a single general ledger account, you may want to create two separate accounts. With a dedicated account for each widget, you can quickly see which brings in the most revenue.
5. Ask for help when needed
If you need help figuring out where to start, hiring a professional bookkeeper or CPA is okay. There’s no shame in admitting where you need help. If you didn’t go to business school, adding an expert who did to your team can bring you great rewards in several ways.
You might find you only need an accountant to help you get started, and you can take over after a few months. Or you may find that your accountant offers valuable insights and time-savings that make a long-term relationship worth the cost.
Consider the ROI. If you spend $500 per month on accounting and they help you make or save $1,000 more on average, you’re making 2x back from your investment.
It’s all about the bottom line
Holidays are busy, but no business owner can afford to skip out on accounting. If you pay attention to the books, you could be selling products at a loss or paying a lot more than you realize on business expenses.
With reliable and timely accounting reports, you can make the best business decisions for a profitable holiday and many future years of success.