How Having Clean And Accurate Bookkeeping Impacts Your Profits
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We know you love your business, and you love money, so today we’re sharing how you can make more money and show your business some love!
When it comes to your bookkeeping and your profits, having the cleanest and most accurate books possible gives you all the data and information you need to make the best decisions for your business that will keep the needle moving forward.
Most people think that their bookkeeping is straightforward. And for some, it likely is. If you are a service provider, your bookkeeping is fairly straightforward, but when we start to look at more complicated revenue streams, e-commerce, and businesses that are generating multiple six and seven figures, there are so many moving parts and pieces involved and there is way more complexity to the business and the finances.
With this higher level of complexity, having clean books will not only allow you to maximize your tax deductions and ensure you are not overstating your income, but it can really take things to the next level in your business, especially when it comes to making the right decisions as the CEO.
The Role Of Expert Bookkeeping and Working With The Right Firm
If you have super clean and accurate books and you are working with the right firm that can truly understand your business and specializes in your industry with experience handling the unique complexities of your business, it can help you in numerous ways!
It can allow you to:
Segregate different types of income streams
Segregate different expenses by income streams
Efficiently classify and organize your expenses
For example, say that you have a bookkeeper who just goes in and books every dollar coming in as sales. This is how a lot of bookkeepers will do it and that's okay. It will keep you tax compliant and it is accurate. With expenses, they likely just have basic buckets to categorize your expenses in and be able to prepare for taxes. This is fine and will get you maximized deductions because the tax preparer or CPA just needs the high-level overview of your expenses and which bucket you are putting everything in, as well as the high-level income. They really don’t care about the finer details of which revenue stream the income is coming from.
This is where working with the right bookkeeping firm and having clean books comes into play. The right bookkeeping firm should be segregating out your revenue streams for each individual item of income.
Clean and Accurate Bookkeeping for Service Providers
We work with a lot of creative entrepreneurs in the social media management industry, so we’ll use this as an example. Let’s say that this company has social media management services and also copywriting, consulting, and strategy services. For this example, we’ll just say the fees are $1000, and of that $1000, $200 is part of the consulting fee while the other portion is social media management.
Most bookkeepers will go in and just put every dollar of that $1000 directly into what is called a sales account which is okay and it's still accurate because you're still not understating income. However, having it segregated into different areas is going to help you determine and understand what services are actually profitable.
Using this example, let’s just say that you bring in $100,000 in consulting services as a social media manager and you only bring in $50,000 in social media management services in a year. This trend continues over time and now you're making $200k in consulting services and then you're making an additional $100k from just the social media management services.
In this scenario, you might want to rethink even offering social media management services because the consulting services are where the money is really coming from and it is what is most profitable for your business. You can see here that if the income was not segregated by services and was booked as all sales, you would not gain this valuable insight from the data and from having expert bookkeeping.
When you have this information, data, and details it helps you to make better business decisions so you can earn more money while spending less and increase your profits big time. We know that you want to scale your business to new heights, and in order to do that you have to understand and focus on what is the most profitable. You won’t have that information if your bookkeeping is not clean, accurate, and detailed.
Scaling a Seven-Figure Business with Clean and Accurate Bookkeeping
We see how this works with a 6 figure business, but Let’s use an example of a seven-figure business. We’ll use my other company, WorkFlow Queen for this example.
WorkFlow Queen generates multiple seven figures every year and has three signature programs - Breakthrough Bootcamp, Kickoff With Asana, and Workflows In A Weekend. We found that we are generating way more revenue from Breakthrough because it is a higher-ticket program. Breakthrough is a $5,000 program, and Kick Off With Asana is a $1000 program. Although we are profitable with Breakthrough, we found that Kick Off With Asana is more profitable.
Here’s how we found this out:
We could see the different income streams
We know exactly what dollar amount is coming from which program
We know the direct costs associated with each program
We say how much time and money we are spending per team member to maintain each program
Breakthrough is a very hands-on program, and we put a lot into it. To run this program requires a lot of direct costs. Say for example we made $100,000 for Breakthrough and spent $20,000 in direct costs that will impact the profit margin for Breakthrough. For this example, let’s say we only charge $1000 for Breakthrough, but we still spend the same amount of time and money on running the program.
Say that it costs us $300 for every one person who buys it at $1000. Then, we are only making $700 in profit, when we really need to be making more because you have to consider the long term. That $700 profit is only one year of maintaining that one student for $1000 and if this student is with us for four years, it’s going to cost us a lot more, and we're actually going to lose money over time.
Having Clean And Accurate Bookkeeping Helps You Price For Profitability
It is imperative to have clean, detailed bookkeeping that provides you with the information you need to help you nail down your pricing on your programs and services and make informed decisions to get rid of what is not profitable for your business, so you can do more of what is really working, and continue to scale to multiple seven-figures and beyond.
If you are an E-commerce business having your books clean and done in a way to gives you this information will help you identify your direct costs and see where you are just throwing money out the window so you can decide to get rid of the products that are no longer needed.
When we think about having your books clean during tax season, many people see it as just getting ready to file taxes, but it is really important to have your income and expenses segregated and detailed with the information you need to make the best decisions for you business as a multi six and seven figure CEO.
Clean and accurate bookkeeping isn't just about staying tax-compliant; it's the key to unlocking the full potential of the empire you are building. While service providers might find their bookkeeping relatively straightforward, businesses with complex revenue streams, such as e-commerce and those generating multiple six and seven figures, face a web of intricacies.
Clean books not only maximize tax deductions and prevent overstating income, but also elevate your decision-making capabilities as the CEO. Working with the right bookkeeping firm that is well-versed in your industry's unique complexities and segregated income streams, and classifies expenses effectively will empower you to make data-driven decisions that help you scale your business beyond what you ever thought imaginable.
We are a bookkeeping firm that is led by a multi-seven-figure CEO who has experienced and deeply understands the complexities involved with efficiently managing the finances of a complex business.
We have experience working with many 6&7 figure businesses as well as e-commerce and we know the importance of having this data to empower you on your path to success. We’re in business to support your business, and if you think we could be the team for you, grab a free consultation, and let’s have a chat!
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