Are you looking for ways to improve your bottom line, but not sure where to begin? An easy place to start is by accounting for every dollar and for every penny that your business receives or spends. It is worthy.
It may sound like a burden, but it’s worthwhile. In fact, accounting for every penny is a great first step to improving your financial outlook. It’s hard to make changes to something if you’re not tracking it. Accounting for every penny will show you all the ways your business is spending cash.
Peter Drucker is credited with two of the most important quotes in business management. The first is: “If you can’t measure it, you can’t improve it.”
Read more about two most important quotes in business here.
Once you have an accurate picture of your finances, you can start making some changes. Keep reading to learn about some of the benefits of accounting for every penny and how to get started.
This will not happen by itself - well, don't get me wrong, you can always check all your bills, categorize them into segments in old boxes and then go through them one by one, to see what is what and what could you potentially use further.
For little advanced users, you can always get yourself a nice spreadsheet program for free and start your expences and earning tracking.
For most advanced users, there is an option to look over the shoulder of your bookkeeper or an accountant and use his sorting system. There you run into an issue, especially with two-sided accounting, that you will get easily lost in hundreds of transaction records.
Is There a Better Way To Categorize And View Expenditures And Earnings?
You bet! There is on market a variety of different productivity apps, from which many provide the functionality to sort your spendings earnings into categories. Also make sure that your bank doesn't provide such app, as in Europe this is already a standard.
According to this guide by Tech Radar, the best expenditure tracking apps for 2021 are:
- QuickBooks
- ZarMoney
- Rydoo
- Expensify
- Concur
- Hurdlr
- Zoho Expense
- Pocketguard
Some of these are cloud-based and allow you to use an app on your smartphone or another mobile device to not only enter the amount but also scan the receipt to create an image. This makes it much easier to keep a copy and file it away in case it's needed by your accountant or even someone from your tax office, plus in just using your phone you can do this on the move.
So now you know, how to start gathering the data. What can you do with it? What are the benefits of accounting for every dollar?
Maximize Tax Deductions
When you’re keeping track of every penny coming in to or leaving the business, you have a better chance of finding more ways to save on your taxes. Plus, you’ll have everything categorized so it’s easier to navigate come tax season.
Tax deductions come in all forms and you could be missing out on some of them simply because you’re not accounting for everything that your business spends. Sometimes we forget to give the accountant every bill, every receipt, then at the end of the year, there is nothing we can do about it. But often it is those small receipts adding up to quite large sums that you can use for tax reduction.
Identify Waste
Not only goods and services account to the company's output but often ignored part is the firm's waste. This waste can be often limited, reduced, or reused entirely - if you want to.
Did you know that John D. Rockefeller, the oil tycoon and philanthropist became one of the richest people in history by simply learning how to eliminate waste, how to repurpose it into new products and sell it? Really. What most people don’t know is that he attributes a huge part of his success to his aversion to wastefulness.
No matter how wealthy he got or how much easier it would be to throw away waste, he’d always find ways to reuse any byproducts from refining oil into kerosene.
An early example of this was a very noxious product that other refiners couldn’t wait to get rid of. They threw away barrels of the stuff down the creeks and rivers, and this toxic runoff made Ohio’s Cuyahoga River flammable. It was said that if a steamboat threw away hot coals overboard, the water would catch fire.
This was in times the automobile industry was still in diapers, so nobody knew better than to throw this fuel out, than to leek it into rivers and creeks. J. D. Rockefeller knew better, so he was ready to use it for something bigger, and when the automobile industry took off, his oil company was ready to take over the world.
But not only automobiles but also when first flight by brothers Wright took off it was powered thanks to this new substance that other companies viewed as waste.
What can we learn from Rockefeller?
- Be resourceful, not wasteful
- Don't let competitors tell you what to do
- Avoid wasting as much as you can
To learn about the topic we don't have to go far. Look at Elon Musk, who was, at the time of writing this article, for 4 days the richest person in the world, built his success, his brand upon reducing waste and making the planet a better place to live - and at the same time on expanding humanity beyond Earth.
Many companies even built their entire business models on reducing waste of others, their own or everybodys.
Waste is a business’s worst enemy. There are teams of employees at larger organizations dedicated to reducing waste. Tracking every penny can open your eyes to how much your organization may be wasting money on unnecessary expenses.
This may come in the form of excessive inventory, unnecessary subscriptions, or contracts that are no longer being used.
Realistic Budgeting
Great businesses live and breathe by their budgets. Unfortunately, outside circumstances sometimes cause us to tap into extra resources and cover unforeseen expenses. The question is how to stay on budget when those things happen.
If you’re tracking every penny, you’ll have an accurate picture of what is really happening in your budget. Instead of being surprised each time some new expense comes up, you can decide to put it in your budget for the next period. Then, you’ll be better prepared if it comes up again.
Increased Visibility
Accounting for every penny gives you a better look at your company’s financial picture. You’ll be able to see every bit of money flowing through the business and where it’s being used. The increase in visibility allows you to make better business decisions and identify concerns before they become problems.
If you don’t like the way your numbers are adding up, you can start making changes in the business. Then, you can track the changes each month to make sure there’s an improvement.
More Accurate Reporting
Along with having better visibility in your cash flow, accounting for every penny will give you the most accurate reports possible. Better reporting helps you make better decisions for the future. You’ll have a better handle on which business segments may be holding back the company’s growth. Then, you can investigate why that is and create a plan of action to overcome it.
Accurate reporting can also help you secure more funding and better interest rates. Third parties, such as lenders, like to see how your business is performing before deciding whether to extend a new line of credit. Accounting for every penny helps you look professional and trustworthy.
Detect Fraud Earlier
Accounting for every penny is a great way to prevent fraud and detect it sooner. With the full financial picture at your fingertips at any time, you’ll have a better chance of noticing trends. Then, if something ever appears incorrect or off in some way, you can start to investigate.
Having every penny accounted for can actually save you time and money by helping you flag fraudulent activity as soon as it starts. Detecting fraud after it’s been happening for a long time means that your business has already lost a ton of money, which is difficult to recover.
This is especially difficult if the fraudster is from internal ranks - returning larger sums of money that are already spent on fraudster's salary may be impossible.
How to Account for Every Penny
You know that accounting for every penny can help your business finances. With all the benefits waiting for you, where do you start?
Commit to Change
As with any new procedure, the first step is to make the commitment. Decide that your business is going to track all cash flow in and out of the business, no matter what it takes. Make sure that part of this commitment involves communicating the change to your accounting team.
Dedicate the Time and Resources
The next step is to make a plan and dedicate the appropriate time and resources. When you’re accounting for every penny, it may take extra hours from your accounting staff, or yourself if you’re not large enough to have an accounting staff yet.
Be clear on the expectations upfront and make sure the person responsible understands why you’re asking for every penny to be tracked. Then, make sure they have everything they need to get the job done.
Don't forget its not just an idea, but it is a whole new process to be established and at the beginning, there is going to be a learning curve and some resistance to change.
It may be a good opportunity to upgrade your accounting software, for example. Think of it as a whole accounting makeover and treat yourself to some incredible reporting features while you’re at it.
Did you know that ZarMoney offers features for tracking every penny, it is cloud-based, it has a FREE trial and doesn't require credit card details?
No Stone Left Unturned
When you’re accounting for every penny, it means leaving no stone unturned. You’ll be logging every invoice and receipt. It can feel like a huge change if you’ve historically been leaving certain information out of your books. However, with the increased visibility and all the insights you’ll gain, the benefits far outweigh the time spent. Tracking your business finances in this much detail will help you identify ways to improve your bottom line and create a profitable business.
