Most organizations are going to experience ups and downs during the lifetime of their operations – this is natural and to be expected. However, lows should not result from poor strategic planning and inefficient processes.

Poor business periods commonly afflict companies that do not have sound record-keeping practices in place. There are many business owners out there who don't set enough time aside for accurately keeping score and budgeting; and while they think they’re saving time, neglecting these processes ends up costing the business a pretty penny.  Looking at your cash balance alone is not enough. Sound record keeping and budgeting allows owners to see the forest through the trees, resulting in more informed decisions.

Sound record keeping ensures accurate financial results, and provides a solid foundation for forward-looking financial planning.  Using budgeting tools is one way business owners can efficiently leverage their realized financial results to draw insight into what the future might hold for their business.  Software solutions that are Quickbooks-friendly can cut down on the time required to implement a sound budgeting process because they minimize setup work. Financial forecasting solutions that can integrate with Quickbooks allow users to have their budgets up and running faster and provide a higher ROI in less time.

That said, trying to build a budget off of shaky financial results may produce inaccurate conclusions and decision making that is detrimental to your business. As a result accurate books and records are of critical importance.

1.     Use accrual based accounting

Accrual accounting does a much better job of matching revenues and expenses, and makes results more meaningful.  Cash based accounting tends to produce results that are more lumpy and harder to interpret. Accrual based results allow managers to have a more regular and consistent view of their business. Additionally cash accounting results diminish the importance of net income in any given period, making the metric less relevant, because revenues and expenses aren’t appropriately matched.

2.     Book expenses consistently

Too many businesses don’t pay enough attention to where expenses are booked.  Debiting an operating expense account has the same impact on your bottom line, but inconsistently booking recurring charges makes interpreting financial results more difficult.  Managers should strive to review their P&L on a monthly basis and understand why accounts fluctuate; inconsistent expense booking makes this task a big challenge. Understand why charges are booked to a particular account, and consistently apply this methodology.

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