Record Keeping & protecting your assets.

A young man asked me for business advice some years ago and I told him to go take a book keeping course or an accounting course. He was a bit put out by this, he wanted me to encourage him to plow ahead and jump right in, he wanted me to reassure him that he was doing the write thing. I had asked him where he had worked and what experience he had in the business. He told me about his experience and knowledge of his chosen industry, but he had not said a thing about working in the book keeping department. Thus my suggestion of some accounting training.

As an owner/operator of a business your primary job is to make a profit and stay in business. The most often cited reasons businesses fail is lack of working capital, poor planning, and insufficient record keeping. Most small business owners do a poor job of record keeping and most do not know how to annalise a profit and loss statement or their balance sheet. Most small businesses would be more profitable and have a more successful business if they would learn a little accounting.

Book keeping: I am not going into the intricacy of book keeping here. There are many good books on the subject as well as more information available on this web site, See Business Basics; Setting up a business in the US . Manual book keeping systems, as well as accounting software programs are readily available at office supply stores and some free accounting software is available on-line. The main thing with book keeping is you have to do it everyday. It need not take much time but it needs to be done on a regularly consistent basis.

Operating information: Is information that is needed to control day to day operations and thus your businesses profitability. Each business has key information that the gives managers a quick heads up on how they are doing. In our on line retail business the key items are, daily sales volume, gross profit margins and shipping cost. I want these numbers daily. Sales and shipping cost along with the average gross profit margin, lets me know at what sales volume I will reach my break even point for the month. On an every two weeks basis, I want the payroll cost and cash flow statements. Payroll is a large expense and as such can get out of control quickly. On a monthly bases I analyze everything, sales, cash on hand, A/r, A/p, and so on.

For example: Lets say your over head expenses come to $20,000 a month. Your average profit margin is 33% after cost of goods sold and shipping cost. You need $60,000 in sales at a 33% gross profit margin to break even. If you lower prices 10% your gross margin drops to 25% and your break even sale volume goes up to $80,000. Higher over head cost or higher shipping cost will have a similar effect. If you know the numbers you can make intelligent decisions.

Expenses: Over head operating cost are easy to create and very slow and painful to reduce. Be very leary of long term commitments and add escape clauses to all contracts that let you off the hook if you go out of business, if the street in front of your business is torn up for any reason, if your business is interrupted for any reason. Does it sound like I am being overly cautious? Not at all.

I have seen businesses go broke because the landlord wanted paid when the street was not passable. You should have a lease clause that says you are renting the location because of the viability and accessibility of the location and that the rental amount will be reduced by 80% if the accessibility or viability of the location is compromised for any reason.

I've seen business men get hounded for monthly payment on a trash dumpster contract long after closing a store. Protect yourself with escape clauses on all long term commitments no one else will look out for you but you.

Record keeping: Your banker will request information, all them government forms require information, and the list continues. Record keeping can be kept simple but should be organized so that you can easily find things. I suggest you get a four drawer file cabinet and make folders for everything, label the folders and date them by year, it's that simple.

Internal controls protects you from errors

Internal controls and theft: Set up office procedures and warehouse procedures that create a checks and balance system.

The person who takes cash in or records sales and receivables does not make out bank deposits or balance the check book. Purchase orders should be used for all purchases, they should be approved by management, attached to the vendor's invoice with any receiving documents, all this attached to the check for managements signature when it is time to pay the invoices.

Similar controls should be set up for credit cards, bank deposits, contract approvals, daily cash register receipts, and all other cash in and cash out items as well as merchandise in and merchandise out.

Safe Keeping: You need to physically protect your companies assets. This would include insurance for all perils, liability, hazard, transport cargo, workers comp, and maybe business interruption insurance as well as key man insurance. Visit with your insurance agent for advise on what your specific business needs.

All records of the business as well as back up computer disc needs to be kept in a fire proof file cabinet or safe. Safe guard your records as they are expensive to recreate.

Security and safety: Each business has security needs unique to their operation, here are some considerations to get you thinking about your businesses needs. Make a list of all asset serial numbers, photograph them. How is the lightning in your facilities? Alarm system needed, fences, gates, locks, fire equipment, OSHA required safety plan and equipment, evacuation plan need. Do you need a safe, drop safe, or armored car pick up?

It may seem like a lot, but once set up it only requires monitoring.