Knowing Your Expenses Helps You Make Better Business Decisions
Yeah, it's another blog post from the resident accountant!!! Get excited!
I want to share a few tidbits with you about how, why and when we track operating expenses. We've had our marketing company for more than 15 years. Before I helped my husband start adWhite, I worked as an accountant for an audit firm, a food-distribution company and an aerospace company. In those roles, I always worked toward certain book close dates. However, even though I was aware of the timing importance of closing the books, I was simply working to a date, to a deadline. I didn't run those companies, so I didn't do too much thinking about the impact my efforts had on their business operation.
Even in the early years of adWhite, I didn't worry too much about the timing of closing our books. I worried about cash flow and I knew the timing of certain big expenses (mostly payroll). And my husband had a pretty good feel for what was coming in the door and what our gross profit was on an ongoing basis. But we were not very precise, and that caused some stress. More importantly, it prevented us from making some business decisions. In hindsight, I can see that this lack of precise information was holding us back.
About two years ago, I set a SMART goal to make sure that all expenses were tracked and the previous month's books were closed by the 15th of the following month. I steadily improved that to the 10th, then the 5th. Now I'm proud to say that we know our expenses on a real-time basis.
This may not seem like a big deal to many of you but, for someone wearing many hats like all of us do around here, this is big. Our goal is to focus on our clients first and foremost. By doing that, you sometimes neglect yourself.
By knowing our expenses real-time, we can make much better decisions. We know when to purchase new equipment (mostly computers and software). We also know how financially healthy or unhealthy we are at any given time, and that keeps us from making bad decisions and stretching to work with companies or on projects that are outside of our ideal client base. This truly is the biggest benefit we see.
Previously, we'd have a general idea of where we stood each month, but now we know! This keeps our overly optimistic sales team from trying to close a deal with the wrong type of prospect. It gives us the confidence to stick to our guns on our pricing and our payment terms. And it just makes us a better, smarter business. All of this means that we can work better for our clients and help them grow their businesses.