Within ten years of starting, nearly 75% of small business will fail, so it’s easy to understand why small businesses cannot make expensive mistakes. Generally speaking, a lot of owners will have to shut the doors due to a lack of cash. A quarter of them will shut the door before the end of year one and close to 50% will leave the market before the end of year three.
Bookkeeping can help save small business owners from this problem.
Your Gut Versus Data
Using data to make gut decisions can help save the business in the long run. Maintaining an updated bookkeeping system is a good way to manage your gut feelings and make the best decision possible.
Creating a Budget
A budget can be a great source of information when it comes to hard decisions. Managing cash flow is the savior of the business, so understanding how a decision is going to affect cash flow and the budget overall will prevent a company from going under. Analyzing the budget at the end of every month will help keep the gut decisions in balance with facts and the sails of your business going in the right direction.
Produce a Monthly Forecast
The difference between a budget and a forecast is in how the data changes. A budget is an educated guess regarding the future that remains the same. A forecast is an educated guess about the future that is constantly changing.
At the end of every month, check the budget versus the actual and analyze any variances from expectations. Take these fluctuations into account and produce a forecast from past data to look into the future. Although past information is important to understand what happened and which mistakes can be learned from, the future is more important. The past already happened, you can’t change it. Focus on how you can continue to survive in the future!
The term “pivot” has become a new entrepreneurial keyword, but often pivots are just ideas. After making balanced decisions and using both budgets and forecasts to analyze performance, pivots have to be made in order to make sure that the company does not continue to make the same mistakes. If a problem is already known to cost money, why should a company continue to do it? The Urban Dictionary describes insanity as, “Doing the same thing over and over and expecting a different result.” Don’t let your business go insane.