A Yardstick to Evaluate
Your Book Keeping System

Use this search feature to quickly find the information you're looking for.

Custom Search

Back in 1991, Lisa Kleinholz wrote an article for Home Office Computing on evaluating small business book keeping systems entitled, "Keeping the books: how 5 businesses do it". (She's a successful mystery novelist now.)

The systems evaluation yardstick she used, and how to proceed with the evaluation was simple (which I always like) and is still valid today for small businesses ... so here it is in much less elegant prose.

The success or failure of a business often comes down to two things. How you decided to keep your company’s books and how well you kept them.

Whether you are just starting out or have been in business awhile, how do you know if your accounting system (the method you use to track your business finances … from each receipt to your tax preparation) is the right one for your business?

It’s best to keep it as simple as possible for your size and needs of your business. But there are just so many choices.

• Do you need a formal filing system or will an informal receipts method work?
• Do you do your books yourself … or hire a bookkeeper?
• If you decide to hire, should you go part-time, full-time, on the premises, off the premises, employee or freelance?
• Do you use an accounting software program … or a spreadsheet ... or do it manually?
• If you do choose to computerize, which product is the best for your business?

So before you can evaluate your accounting system, you need to stop right now and do a bit of information gathering.

Give some thought to these questions

Drink some tea while you actually take the time to answer the questions about your book keeping system before you move on. I really do mean take the time to answer the questions. Brian Tracy, a best selling author and coach, always says, "Think on paper, think on paper, think on paper."

... Use the picture from a gorgeous summer day at my lake to relax and focus.

SIDEBAR: In the picture, you can see the devastation the pine beetle has caused to our area. See all the dead trees? Thousands of trees have had to be taken down because they have become a major fire hazard. END SIDEBAR

... But I digress so back to our topic - book keeping system criteria and evaluation.

By the end of this chat, I hope you will have a solution (or at least some ideas) that meets your needs and solves the problems you are experiencing with your current accounting system. Okay ...

... Are you stuck? How about these possibilities:

What is your business?

• I love ________ (fill in the blank) about my business.
• This business drives me to want to _________ (finish the thought).
• I started my business because ___________ (go on ... tell me! Say it out loud so you can hear it for yourself.)

What are your business needs?

• track expenses
• track different categories of income
• track results of advertising and marketing efforts
• file all taxes on time and accurately
• reports to manage my business
• track trends on sales
• process payroll (if you have employees)

What are your problems?

• system is too complicated for a non-accountant
• program language is not user friendly - uses terms like debits and credits
• system has more features than I need - it is too big for my business
• no reports because I have a manual system ... all that data going to waste! :-(

Doesn't it feel good to be working on your business instead of in it? Your book keeping system will thank you too! ;-)

Five Questions to Ask

To determine if you have a good book keeping system that meets the needs of your business, Lisa suggests your system should answer these five questions:

(1) Are you charging enough?

Practically any organized system will let you see if your revenue coming in covers your business expenses (including your draw) with some extra room left for a profit. Even simple systems will let know what your profit margin is.

(2) Are you spending too much?

Your system should let you break down your expenses by type so you can see where your largest outlays are. You need this important information if you are going to control your costs. Cutting costs may make sense in the short run but take the time to think about how will it affect your long range plans for your business?

(3) Are you monitoring your cash flow?

Projecting your cash flow three to six months into the future will give you a heads up if a cash squeeze is coming. It gives you time to be proactive; perhaps plan a sale to bring in business during the slow period.

(4) Are you focusing your energy prudently?

If your accounting system is doing it’s job, you should be able to see where your highest profits are so you can direct your time and money there instead of on the less profitable parts of your business. Or maybe you can brainstorm to see if there is a way to increase your profits in these areas.

(5) Are there red flags warning of problems ahead?

Your book keeping system should produce comparative reports so that you can use your history to run your business more effectively now and make strategic decisions for the future. :O)

The System - Links

Return to Top - Evaluation Criteria

Return to The System - 5 Components of a Book Keeping System

Return to "The System" Section - Developing Your Accounting System

Return to Home Page - Freedom is the Goal

New! Comments