Financial management starts the same way for all businesses: it begins with basic bookkeeping. You may download Sage or QuickBooks and use these platforms to manage your books, which involves tracking all of your expenses. It’s the simplest way to understand where your money goes and how much money comes in, allowing you to track things like profit/loss, cash flow, and so on.
All small businesses are encouraged to follow basic bookkeeping practices, though there may come a time when you outgrow it. It’s no longer good enough to manage your business finances by simply recording your expenses and income. You need to go a step further than this and explore more proficient options, but how do you know when this time comes?
If you notice or spot any of the following signs in your business, then it means you have to get more intensive financial support:
You Can No Longer Predict Cash Flow
In the beginning, it’s fairly easy to look at your books and predict cash flow for the next few months. There will reach a point where this is no longer possible. Your business has become more complicated, and you may have multiple revenue streams, lots of unpaid invoices, additional employee expenses, etc.
It becomes impossible to look at your financial accounts and predict what your cash flow will be for the foreseeable future. In a world like this, you have to move beyond basic bookkeeping and consider alternative solutions. The abusinessmanager.com virtual controller service is one such solution to try: it gives you a remote controller who will take over financial management and help you make sense of the numbers on your books. This provides the ability to forecast accurately and understand your cash flow more than you’re currently doing.
Financial Decisions Carry More Risks
As your company expands, certain financial decisions now carry more weight and present bigger risks than before. It’s a lot easier to decide where to invest money or how to change your business when you’re just starting out. You could be in a situation where it’s physically impossible for you to do all of the work required to run your business, in which case you don’t think twice about hiring a new employee.
However, as you get bigger and more money is at stake, simple decisions like hiring new employees come with additional risks. You need to figure out if this is a financially viable decision that will benefit your business. The same goes for any of the following:
- Should you increase your prices?
- Do you need to reduce or increase advertising spend?
- Should you branch out and open a new office/store location?
You can ask these questions as often as you want, but basic bookkeeping software isn’t going to cut the mustard. You now need proper financial help and guidance from experts, as they can dive into your finances and work out which decisions are better in the long term.
Bookkeeping Reports Don’t Answer Your Questions
A small business that starts with just one person can consult bookkeeping reports and find the answers to their financial questions. Is my business profitable? Yes or no. How much money am I bringing in this month? Oh, that’s easy to see. These financial reports become less and less useful the bigger your business gets.
Why? Because you end up with more things in the system and more questions to ask. Instead of offering one service/product, you now offer multiple. How will your bookkeeping reports tell you which one brings in the most money and is the most profitable? It can’t – nor can it pinpoint where your business loses the most money.
When you reach this point, you need extra financial help to create better reports that actually answer your questions.
Financial Mistakes Cost A Lot Of Money
It’s usually not a catastrophic problem if your business makes a minor tax error or misses an invoice or two in the beginning. The mistakes are low-impact because your business is small and doesn’t make enough money for the problems to be that worrisome.
On the other hand, a bigger business will feel the impact of financial mistakes much harder. Your small tax mistake now costs you ten times more than it did in the past. Your missed invoice means you can’t afford to pay a supplier this month. When the financial mistakes start to create bigger problems for your business, that’s when you must move beyond simple bookkeeping.
What does it mean to go beyond basic bookkeeping? Effectively, you can opt for a controller who will manage your finances and help you make decisions, or you can hire a CFO. Your choice depends on where your business is at, though most companies pick a virtual controller for accessibility, especially when in the growth phase. CFO’s are usually reserved for very big enterprises.
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