Common “Cents” on Managing your Company’s Money by Tom Luby

Common “Cents” on Managing your Company’s Money

Tom Luby, Business Consultant and Fence Industry Spokesperson

IT IS DECEMBER, AND AS USUAL, THOUGHTS TURN TO CHRISTMAS, HOLIDAY PARTIES, FUN AND FAMILY. EVERYONE IS TRYING TO FORGET THE TROUBLES OF THE PAST FEW YEARS AND THIS CRAZY PANDEMIC, AND INSTEAD, COUNTING BLESSING AND GIVING BACK TO THE COMMUNITY, FAMILY AND FRIENDS.

EVEN THOUGH IT’S NOT AS JOLLY, IT’S ALSO A TIME FOR YEAR-END ACCOUNTING, TO TALLY THE GAINS AND LOSSES FOR THE YEAR.

For obvious reasons, financial controls are among the most important concerns and a principal responsibility of owners and managers, and they can be the most misunderstood. Your company’s finances, like your own, have basic roots in simple common “cents”, but in the business world, things can and do get more complicated. How you control your company’s money, coming in and going out, is critical. To do this, you need the right tools and the proper understanding of those tools.

The operative word here is “control”. Good accounting and sound financial controls start with setting up your business’ finances the right way in the first place so that you can track the important things. You do not want a financial system that is only convenient for your accountant to use for tax preparation while falling short of providing the fight financial management you need. You want a system that allows you to see where you are going as a company and plan for your company’s financial future and for your profits.

As a business owner or manager, you need to be able to manage your money, know where it is coming from and exactly where it is going. And, you must budget your profit. You must know that your profit is going to be there at the end of each and every year, not something you just hope you find after twelve months of hard work.

Good financial controls begin with a correctly established chart of accounts, which is simply a numbering or ordering system used to keep track of all the money that comes in or goes out of a business.

As the owner or manager, you need to know the answers to such questions as: Is there any unnecessary waste in the company and where is it? Have expenses dramatically changed in any area of the company without your knowledge? Which crews are making you the most money and which ones are not productive? Which jobs are truly the most profitable.? Are all your jobs contributing to the overhead of the company? Do you know what your true overhead factor is? Are all members of your sales staff quoting only profitable work for the company? Do you have an accurate labor burden figure for every employee in the company? Do you know exactly where your break-even point is?

These are just a few of the many financial control questions that you need to be able to answer if you are properly managing your company’s money.

This end-of-the-year time is a good time to establish, or re-establish your company’s chart of accounts. Most fencing companies operate their physical year simultaneously with the calendar year running from January 1 to December 31.

Which is why now is a great time to discuss this topic, since any changes you may want to make in how you manage your company’s money must be made in the next few weeks.

Every time money is spent or money is received by the company, that transaction must be recorded; it’s usually the responsibility of the bookkeeper.

In establishing a sound chart of accounts, certain categories of expenses are necessary to provide an overview of areas in which control is needed, and to facilitate the calculation of percentages that will be used in determining pricing, costing, labor burdens, overhead calculations, and even accurate profit margins, along with analyzing crew and job productivity, transportation costs, labor costs, true materials costs, etc.

This, along with a comprehensive income statement, will give management a clear picture of the financial condition of the company and establish a sound basis for budgeting and control.