Beyond Dollars and Cents...Using Recordkeeping to Manage Your Business

Too often, employees, managers and owners of businesses think of a recordkeeping system purely as a means to measure financial performance. While financial statements such as income statements and balance sheets provide a standardized measure of financial standing and offer a basis for comparison against comparable businesses, perhaps their greatest value is as a management decision-making tool.

While there is value in electronic bookkeeping systems, the real value is in maintaining a record system that allows the business to make informed decisions about the future direction of operations.

I was instructing a series of courses on financial management recently, and two of the participants owned a retail/service operation. Their system of record-keeping was pencil and paper, but they were conscientious about keeping track of their data, and they had all the information they needed to make managerial decisions. They simply didn't realize they had it. They told me they had been waiting 15 years for someone to provide the tools they needed to make good decisions.

Capital budgeting, inventory purchasing and hiring decisions are just a few examples of management decisions that are aided by an accurate system. Imagine trying to make a decision about whether to invest in a piece of equipment without having any idea about pay back period, break even sales point on the purchase price and so on.

In the paragraph above, I noted that the recordkeeping system itself is more important than whether or not you use a software package. However, software programs have some definite advantages:

• They generally take less time for entry than manual systems;


• They allow for "click of a mouse" reporting;


• They reduce the time spent on repetitive tasks;


• They make inventory tracking much quicker;


• They simplify payroll processing; and


• They automate tax computations and processing.
• 
  

I get questions about which software system to use, but I don't make those recommendations. Each one has its own set of benefits. The bottom line is that you should choose one that looks beyond simply meeting tax reporting requirements and allows for the provision of management decision-making data.

For assistance in creating a system that works for you, see your local SBDC. Find a location near you by visiting www.missouribusiness.net.

Authored by: Mick Gilliam, business specialist with University of Missouri Extension.
Date reviewed: 8/15/08

Source: http://www.missouribusiness.net/docs/beyond_dollars_cents.asp

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