Estimated reading time: 10 minutes
In finance like in almost no other area, details are vitally important.
When keeping records for your business, it’s so tempting to cut corners sometimes or to not pay attention to the details.
It’s funny because in so many other areas, I advise not to sweat the small details. I talk about taking the easy way, and not needing to know all the specifics right now.
So it seems like a contradiction when I turn around and preach on the necessity of paying attention to details. What happened to believing everything will just work out?
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The Balance of Detail and Inspiration
There’s a bit of a yin and a yang going on here.
The yin, if you will, is the inspiration I’ve written about regularly.
It’s the knowledge that life is supposed to be easy. It’s the certainty that success is inevitable. It’s the creative spark at the root of everything else we do in our business and personal lives.
Without that creative spark, nothing else would really matter.
But just because we can’t succeed without that yin, doesn’t mean it’s the only thing that’s important.
To continue the metaphor, the yang is the practical, pragmatic part of all of this.
It’s the detail. It’s knowing exactly how much you made and spent this month. It’s keeping all your receipts in case you’re ever audited. It’s keeping accurate books so you know exactly how your business is doing.
There’s a bit of a tension between the yin and the yang — the inspirational and the practical. Most people are pulled to one side or the other of that spectrum, but you really can’t have one without the other.
My goal at Possible Promise has been to keep that balance, and it’s a struggle since there does seem to be such a tension between these two sides.
I’ve written on this tension before, when discussing the importance of keeping an emergency fund and yet having the proper attitude about it.
Why Do the Details Matter?
In our personal lives, inspiration is the ability to dream about what it’ll be like when we’re making twice the income we are now. The practical is the ability to still live within the budget dictated by our current income.
The dreaming is important. It’s exactly that dreaming that sets into motion the forces to actually make that dream a reality. But the practical is important, too: if we can’t live within our current budget, then our financial situation will just get worse and cause us more stress.
And of course it cycles back around, because if we’re stressed about our financial situation, then we’ll create more reasons to be stressed.
In business, the inspirational is the ability to envision what the business will be like when it’s successful. The practical is still keeping expenses down now, and of course keeping accurate records of the incomings and outgoings of the business.
Again the dreaming is important. It’s vital to hold the vision of what you want your business to be.
But the practical is important, too. Without accurate records, you just don’t know how you’re actually doing and how close you are to reaching that vision.
If you can’t go and generate a profit and loss statement right now to determine how much profit you’ve made so far this year, then something is wrong. You’re flying blind. You can’t see what’s ahead of you because you don’t know where you are now.
What’s really needed is to ground your dream in reality.
I’ve seen a lot of people who always have their head in the clouds — confident that things are about to work out for them but never following the inspiration into the practical. They have new ideas but those ideas never take shape because they are stuck in the dreaming stage.
As I said above, it’s yin and yang. You need both sides. You need to have the dream, but support it with the practical.
How to Ground Your Dream in Reality
So once you do have the dream, which details actually do matter?
A lot of these topics could be their own blog posts, but I wanted to at least cover the basics.
On the personal finance side, you need a budget. No matter how little or much you make, you need a budget.
That budget needs to reflect reality. You need a clear idea of how much you make every month, and how much you need to spend and on what.
A lot of the details will be covered in my financial invulnerability series (and yes, I promise part 3 will be coming out soon), so I’d take a look there for more.
Mostly here though I wanted to talk about which details you should be paying attention to in your business.
Because, as I said in the introduction to this post, it’s tempting to cut corners sometimes or take shortcuts. But doing so can be really detrimental to your business.
The answer is, when it comes to the financial aspect of your business, pretty much everything is important.
Keeping Accurate Records
When logging your business’s transactions in the books, all the details matter.
Here’s a good example:
Recently I have been doing a cleanup and noticed that many of the checks are misnumbered. For instance, the bank statement might say check 8532, but in QuickBooks there’s a transaction for the same amount but labelled check 8533.
Now as a bookkeeper, I could just match these two transactions and call it a day. But I always go in and correct the check number in QuickBooks so the records are correct.
Why? Imagine later on I need to go back and look at check 8532 for some reason. If the number is wrong in QuickBooks, I’m going to have a hard time finding it.
The date is also important. It might not matter if it’s a day or two off, especially when it comes to checks since it can take a while for those to clear. But I once came across a transaction that had its date in the year 2002, instead of 2022. That matters for obvious reasons: if the transaction is listed in the wrong year, it’ll affect the books for that year and not for the year it was actually made.
The expense or income account matters, too. For instance, if you categorized a charge from Zoom as Software for part of the year, then suddenly switched and labeled it as Communications, your profit and loss is going to be inaccurate. It’s either one or the other: pick one and stay consistent.
And of course, the amount matters. The exact amount, down to the penny. I’ve seen transactions that are 10¢ off and you might not think that matters. But it does, because it means the bank ledger is off by 10¢.
And it might just be 10¢ here and there but it adds up. Plus, then you don’t have an accurate picture of your exact bank balance. And when your bank balance is off, then you don’t know if you’ve missed something along the way.
As an example, I was recently hunting down some errors in a bank register in QuickBooks. Each month the transactions were exact but the beginning balance was off by just under $50. Finally I discovered a transaction in January that had never been added. Once it was added, everything balanced perfectly, down to the penny.
I know some people who won’t worry about a difference of a few cents, and will just label it as Reconciliation Discrepancies. But personally unless I have a very good reason why I can’t, I’ll generally track down even differences of a few cents until everything matches up how it should. In my opinion, forcing a reconciliation like that is a last resort. Sometimes, in cases like bank errors, it might be necessary though. But I’d rather take some extra time and ensure all the data is accurate.
How to Ensure Your Records are Accurate
The best way to prevent inaccurate records is to reconcile your accounts monthly.
In QuickBooks there’s a great reconciliation feature that lets you enter the statement ending balance and date, select all the transactions from that statement period, and ensure it all reconciles down to the penny. Once those transactions are reconciled, you are warned any time you attempt to modify them.
When you reconcile monthly, you know that your accounts are accurate at least of the end of the prior month.
When you’re going through the reconciliation process, I suggest not just looking at the ending balance and making sure it all adds up. I’d go through every transaction and make sure the details are correct, too.
- Ensure the date is within a few days of the listed date on the statement (again, with the exception of checks, but it should still be accurate to when you wrote the check).
- Ensure the check number is what is listed on the statement.
- Double check the amount is accurate to the cent.
- It should also list the correct payee so it’s credited to the proper vendor (or customer in the case of income).
- Finally, ensure it’s coded to the proper expense or income account.
Again, don’t cut corners. It’s a bit tedious when there are 60 or 70 transactions on a statement, but that’s why it’s all the more important.
Another thing you can do, in the case of QuickBooks, is check the transactions it’s downloading from your bank every week or so. Match them up with transactions already added in QuickBooks, or add them if they haven’t yet been added.
Connecting QuickBooks to your bank does wonders for ensuring your records are accurate, since it’ll immediately highlight anywhere you’ve entered incorrect information.
When you’ve matched up your transactions every week or so, the end-of-month reconciliation process goes a lot faster since you’ve already done most of the work ahead of time.
There are other things you can do, like closing the books at the end of each month, but I don’t want to make this post longer than it needs to be.
“But That All Sounds Boring!”
I completely understand that for people who don’t enjoy the process of bookkeeping like I do, this all might sound boring and the last thing you’d like to be doing with your time.
I’m 100% a believer in inspired action. I believe you should only ever do what you are inspired to do.
And yet, that doesn’t make these steps unimportant. You don’t want to pass over these details and then regret it a year from now when things aren’t adding up how they should — or worse, you didn’t keep records at all and are scrambling to pull everything together for tax season.
This goes back to that balance of yin and yang. If the details don’t excite you, what do you do?
Think about it from the context of your personal life. If you weren’t excited about paying your rent, would you just not pay it?
Of course not. You’d deal with those feelings and get to the point where it was the inspired thing to do to pay the rent.
Note I didn’t say to just ignore the feelings. Again I do believe in inspired action 100%, and never believe we should just slog through because it’s the “right thing to do”.
But if you had to pay a bill and yet it wasn’t feeling super inspired, you’d have to work through those feelings somehow. Perhaps reframe it and think of all the positive things paying that bill brings you. Or if paying bills in general doesn’t excite you, you might ask your partner to do it instead.
That’s where the balance comes in again. Certain actions are important, but we should feel effortless and at ease while taking those actions — or else find another way of going about it.
So it is with your financial records in your business. If going through and reconciling accounts isn’t your idea of a good time, you have two choices:
First, you could deal with those feelings and reframe it in a way that is positive. Think of the benefits of having accurate records and the peace of mind that would bring. Think of how it would be knowing that you can discover at a moment’s notice what your profitability is for any time period. You have all the data at your fingertips to see how your business is doing, which gives you the information you need to make more informed decisions about the future.
But that inspiration still might not come. In that case, and really what I think is the best choice for most business owners, you can hire someone to do those steps for you.
Again I get it — you didn’t start your business to comb through financial records. Your time can be better spent elsewhere, on things you’re actually inspired to do.
That doesn’t mean those things are unimportant, just that the path of least resistance is to hire someone to take care of it for you — someone who already knows how to do all of this and who enjoys that process.
If that sounds like a far better option, I’m open to talking about your situation and seeing how I can help. Just click the button below and schedule a time for us to talk.Schedule a Free Consultation
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