Pain Points

3 Possible Answers to the Question: Where Did the Money Go?

Oct 20, 2021 | Entrepreneur Blog |

 

3 Possible Answers to the Question: Where Did the Money Go?

Author: Nissa Fowler

In my experience, one of the most common problems that entrepreneurs struggle with is understanding where the money goes.  For example, you do a job with a high price tag and then think that the cash is just building up in the bank.  Then tax time comes and your accountant thinks you made much more than was ever in your bank account.  So the question you probably have is – where did the money go?

1)      You already spent it on job materials and/or labor: too many skilled professionals are not considering the exact expenses that the business pays in order to complete the job.  Often the cost of parts and labor aren’t even being identified on the invoice to the customer.  Not only can skipping this information be confusing to the customer, but it can also mean that you lack the information that you need that would help you run the business properly.  The issue is that you can’t focus on being cost-efficient if you don’t track what each job is costing.

2)      You took a family vacation from the business account: we call this “commingling”.  The reason this is an issue is because not separating out your personal spending from the business leaves you confused about your profitability.  For example, your tax accountant knows that the tickets to Disney were not a business expense, which means that expense won’t be deducted when calculating how much of the money you earned during the year will be taxable. Understandably, this can get confusing and cumbersome when you are considering the trip to the grocery store where you pulled out the wrong credit card, but the payoff of knowing exactly where your business stands, in real time, is immeasurable. In order to successfully run your business, you need someone who can help you with cash flow analysis.

3)      Your customer never paid the invoice you sentyou would think that customers should always pay their invoices, especially when they’ve just received services from a skilled professional, but unfortunately it happens all the time.  That’s why it is so important that you have a clear and user-friendly system in place in order to properly track customer accounts.  If not, you could basically be giving your work away for free!

These are just a few of the issues you might be dealing with when it comes to money coming in and out of your business.  So in order to address these issues and more, the first thing that every entrepreneur's business should have straightened out is the accounting side of the business.  Let’s face it, your time is more valuable doing what you do, which is why doing the bookkeeping yourself, or worse, having someone who isn’t trained to know what to look out for, is not your best choice.

Think about it this way – I may know what a check valve is, but I can’t install a manifold to properly plumb my in-floor heating zones which is why I need a skilled plumber.  I hate cold feet and unexpectedly high heating bills, so I’m going to turn to a professional to do what they do best.  The same goes for getting a handle on where your money goes in your business.

An accountant should be able to advise you on better options for invoicing and get a set up in place for tracking job costs.  Having the chart of accounts working smoothly in your company books will mean that any personal spending from the business account is correctly booked and will not skew your bottom line.  Most critically, an accountant should help any entrepreneur understand what really drives their profits and what money saving opportunities are waiting for them to take advantage of.

 

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