Quickbooks, Bookkeeping and Accounting Blog

One of the first things I do when I get involved with a business is to figure out what their major sources of revenue and expenses are. I do this in two ways.  First, I talk to management to find out what things they consider to be important to the business. Second, I spend a couple hours going through their QuickBooks file. My goal is to figure out which things are worth paying attention to and, equally important, which aren’t.

When talking to management, I ask them how they spend their time, which products or customers they consider to be most profitable, what they think their biggest expenses are, what expenses most directly impact their revenue, what they think could be done to increase revenue and profit and where they think they could save money. My goal with management is to learn as much as I can about the business and management’s perception of the business.

After talking to management I like to spend some time reviewing the companies QuickBooks file. I prefer looking at their QuickBooks file to looking at reports as I want to look at the data behind the reports. My goal here is to get a firm grasp of how the company really spends and makes money. I then compare what really happens with management’s perceptions. Usually there are some significant differences.

After talking to management and reviewing the company’s QuickBooks file, I am usually able to identify the items I think are worth spending time on. In most cases, the biggest surprise management gets when they see my list is how small it is. The reason is simple: only the big numbers add up. This isn’t to say that small numbers don’t matter (if you might be able to save $100/month on your phone bill, have someone look into it), it’s just that management should not be spending much time on the smaller numbers, and management certainly should not be talking about the small numbers when discussing the company’s strategy and goals.

Instead, management needs to define the things that have a significant impact on the success of the business. They need to figure out how to make projections for these things and then need to figure out how to measure them. Finally, management needs to establish a process for regularly measuring these things, analyzing and discussing differences between projections and actuals, and then figuring out whether to adjust projections to reflect what is actually happening or adjust business processes to attain the desired results.

This process does not need to be overly complicated, but even a simple process accomplishing all these things takes a fair amount of time. Because of this, it is extremely important not to waste time on insignificant things.