The Importance of Watching Where Finances Go When Running a Business

Owning a business can be an exciting way to explore your passions and make a mark on the world. It can also be incredibly stressful. One of the most important ways to keep control of your business and your peace of mind is to maintain a vigilant watch on your finances. Taking the time to keep and study your records can translate to long-term success for your company.

Keep Diligent Records to Avoid Conflict
Your financial records show where your business is succeeding and where it needs to improve, so you can cut fat and stay on track.

Most obviously, by watching your sales, you will see which products or services are more successful than others. However, you will also get a broader sense of your business’ strengths and weaknesses. Take the case of Kmart, which went bankrupt in 2002. Following rapid expansion in the ‘90s, the company focused solely on lowering prices, but didn’t notice its major weakness: it wasn’t investing in keeping supplies stocked. Cash dried up, and many stores were forced to close.

For smaller businesses and start-ups, keeping track of finances is important from the get-go. As explained by Palo Alto Software CEO Sabrina Parsons, watching your finances will help you set profit targets for your business each week or month, which you can compare to industry standards as you plan for growth. If your profits are under target one month, you will know to start following up on invoices or enacting late-payment fees.

Moreover, a lack of financial record keeping could result in conflict. Imagine if an employee claims to have unpaid hours, but you disagree. Without an electronic record of their wages, how could you be certain a mistake wasn’t made? The same is true for the IRS, which expects to get paid its share of your company’s earnings. Electronic payroll and wage statement methods, such as ADP Electronic Payment Systems & Services, are the only way to guarantee mistakes aren’t made.

Keep Your People In Mind
Tracking what you spend on your employees can be better for both of you. As the Young Entrepreneur Council noted in Forbes, you may discover more money is available to incentivize current employees (or even hire new ones).

Of course, you can also discover that you’re outspending your budget, which is equally crucial information. You may find that you need to shop around for better insurance plans, or plan to wait longer before growing your staff.

Track Expenses Now, Thank Yourself at Tax Time
It may seem tedious, but tracking your business expenses in real time can mean more money and fewer headaches in the future.

Expenses that are necessary to keep your business running can be deducted from your taxes. Some major tax deductions can come from business travel, office supplies and equipment, and employee benefits.

And of course, if the IRS comes knocking, you won’t need to break a sweat if all of your financial records are in order and up-to-date. The IRS lists a breakdown of how long you should keep your financial records here.

The time and effort involved in watching your finances may feel overwhelming, so it is important to think of it as an investment in your future. Adopting good financial habits can yield benefits from tracking your success to planning for growth to saving on taxes. As Parsons says, “the more you see data and realize how useful it is when it comes time to make decisions, the easier it will be to actually make decisions. Getting started is the hard part.”