It’s often said that lack of money is the reason for most business failures but in reality, poor financial management is often the root of the problem. Here are some tips to establish a beneficial bookkeeping routine and grow your overall business financial health:

  1. Get the Full Financial Picture: Generate a balance sheet regularly. What is a balance sheet? It’s an accounting of assets (what your business owns that can contribute to revenue generation), liabilities (what your business owes, like loans, mortgages and bills) and equity (what is yours)—or what’s left when all assets are cashed in and all liabilities are paid off. This information is essential to business owners, as well as to potential lenders and investors.
  2. Commit to Reviewing your Financial Regularly: When your business’s financials are up-to-date and accurate, you’ll spot problems early. If you review your financials on at least a monthly basis, you may discover just how cyclical your business really is, and then decide to take out a business line of credit to cover the slower months.
  3. Review Your Files for Any Outstanding Invoices: Staying on top of your financials means knowing what you owe and who owes you and taking action on both. If you have open invoices in accounts receivable, send reminders to your clients. Going forward, consider offering an incentive for early payment, rather than assessing a late fee. And pay invoices that you owe within the required time (usually 30 days or less) to keep vendors happy and build and maintain good credit.
  4. Go Through Your Depreciation Schedule: To keep good accounting records, you must track how much you depreciate each of your business assets in some form of a schedule. Depreciation is an accounting/tax principle that allows you to allocate the cost of a business asset over its useful life. In other words, depreciation means that the cost of an item is spread out over the number of years the item will be used by your business.
  5. Review your business plan: Every small business should have a formal written business plan to help with business decisions and strategic planning. If you have one already, now is the time to do a quick review and consider updates to reflect your current business needs and goals. If you don’t have one, set aside time to draft this important document. From start-up to succession planning, a business plan serves as a guide through the entire life cycle of a business. An effective plan can help business owners prioritize how to spend their time and money and set measurable goals. It also can help identify current or future obstacles, so you can better anticipate and avoid potential risks. In addition, a business plan may help you obtain business financing because lenders may require a formal business plan before extending credit.