Now let me set the record straight, I’m not advocating any type of Chicago Mob style or illegal activity! What I mean by keeping more than one set of books is completely legal and makes a lot of sense. Let me explain.
In running your business it will be necessary for you to report, display, and use the financial data pertaining to your business for a variety of different reasons. For example, when speaking to your banker or your accountant you want to have your financial records prepared in a standard GAAP (Generally Accepted Accounting Principles) format. GAAP reports are great for your banker but do very little to help you run your business.
So for you as the business owner you need a second set of “books” or reports to provide you the visibility into your business that you will need to determine profitability and costs, and really manage your business. I call this a managerial format. A managerial format displays the data of your business by segments and profit centers such as the products and services you sell, the geographical areas you serve, even by crew or service team. For example, let’s say that you run an Algonquin based landscaping business. You really should be able at a glance to determine which segments of your business are running profitably and which ones are not. Perhaps your tree trimming segment is losing money while your lawn spraying segment is doing well and your installation and design segment is the most profitable in terms of gross margin percentage but contributes the least to your overall cash flow.
A correctly formatted managerial report will highlight all of that information and more allowing you to make intelligent and informed decisions about your business operation. In the aforementioned landscaping example, tree trimming has a much higher workers compensation insurance premium than the lawn spraying segment. So if you charge the same hourly rate for both of these services the tree trimming segment will naturally be less profitable but this will go unrecognized if you simply look at a GAAP set of books.
A third set of books that may be advantageous for you to keep is a set of books that is structured around tax compliance. Tax compliance is a very complicated and specialized area of accounting and by keeping a set of books that provides the information that is important for tax preparation by your accountant you can save yourself and your accountant a lot of time and energy, which of course saves you money.
With these second or third sets of records, you can have accurate and timely information. You simply cannot wait to the end of the year, when it’s tax time for your accountant to finally look at your numbers and figure out how you did. In some industries, let’s say for example masonry contracting in Algonquin, you really need to be looking at your numbers every single day to determine whether your costs are in line with your estimates and to manage your profitability at the job level.
In this masonry contracting example, the contractor has bid on a $100,000 fixed-price contract and will earn $100,000 in revenue whether it takes one week, one month, or one year to complete. However, the amount of profits earned is directly proportional to the amount of time and the amount of materials consumed in completing the job.
Therefore, it is very important for the contractor to understand at the end of every day exactly how many hours were applied to the job, exactly how much material was consumed, as well as the percent completion of the job. Without daily feedback it is impossible for him to manage the job correctly and therefore whether or not he turns a profit becomes a game of chance. Make sense?
So what I recommend to my clients here in Algonquin is that they develop a daily feedback mechanism that is simple to complete and use, yet provides all of the necessary information required to manage their business professionally and profitably.
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About the Author:
Located in Algonquin, IL; Dale Kubiesa, your Accounting-CFO, has over 30 years of experience working with companies from start-ups to Fortune 500s. Dale holds a BA in Commerce and an MBA, both from DePaul University. As a Certified Public Accountant (CPA) and CFO for hire, Dale brings the accounting and financial firepower to your organization that you need, no matter how challenging the situation.
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I hope you enjoyed and profited from this article. If you have not already downloaded complete whitepaper and listened to the accompanying podcast I recommend that you do so, as there are far more details and examples given within that audio program.
When you are ready to upgrade your financial and accounting team please pick up the phone and call me, Dale Kubiesa, the Accounting-CFO to discuss your particular situation. At the end of that discussion, we will decide together whether or not I can be of assistance. And if we decide that my services are not in your best interest we will part as friends. Sound Fair?
Call me at the number below.
Dale Kubiesa, MBA, CPA, CFO
The Accounting-CFO
Brutally Honest, Trusted Advisor
847.458.8477
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