To make good decisions, you must have accurate data. Here are 5 steps you can take to capture accurate data in your business.
Step 1 is to hire a bookkeeper. Be sure to hire someone who is not a friend or a relative, since you need someone who can push back on you and who you can fire if you need to. A good way to find a good bookkeeper is by getting a referral from your CPA, since you will need to find someone who will get along with your CPA as they work together.
Step 2 is to spend time with your bookkeeper to set up a chart of accounts. Each account is the name of that accumulation of data. Don’t assume your bookkeeper knows what goes in those accounts. You must be specific as you are the only one who can decide what information is important to you. Typically, there are 5 groups of accounts (income, expenses, assets, liabilities, and equity). Every one of your accounts will fall into these groups. Examining the purpose of these different accounts opens your eyes to the data necessary for making important and successful decisions. It’s important for you to go through each account with your bookkeeper and have your CPA review the chart of accounts with the bookkeeper. Ask your CPA for suggestions as it is important to categorize differently for tax purposes and because it’s where all your data is derived.
Step 3 is to set up a system for communicating with your bookkeeper. You need to set clear expectations and communicate how you want information coming to you and how often. Bookkeeping should be completed on a weekly basis, not once a month. You don’t necessarily need to talk with your bookkeeper weekly, but you should indicate your communication preference. For example, regular email with your bookkeeper could be once a month or once a week. Regardless, the frequency of communication should be predetermined.
Step 4 is to sit down and review your books with your CPA. Since your bookkeeper and CPA should be regularly communicating, your CPA should have already reviewed everything with your bookkeeper. Now it’s time to review with your CPA so you are both on the same page and understand. It’s important to review monthly or quarterly, which can help you make good decisions.
Step 5 is to determine the most important item or information you want to see on a monthly, weekly, and daily basis. You will want to set up 3 points of information you want to see on a monthly basis and review those with your CPA. You want your CPA to advise you as it’s your CPA’s job to ask the questions. For example, you may want to review how your expenses, assets, and liabilities are performing on a monthly basis, or consider your overall cash flow and profitability. Reviewing those will provide you better information to work with. Finally, you will want to set up a couple of items to review every week and then determine one item you will look at daily, such as cash or cash flow.
Want to learn more about how you can make way more money and pay way less in tax? Book a call with the team at TFW Advisors® today!