Tools and Practices to Eliminate Financial Blind Spots
As a small business owner, you might be wondering…
What tools can I use to find financial blind spots in my business?
Running a small business comes with a long list of responsibilities, and keeping track of your financial health is one of the most critical. Yet, financial blind spots—unnoticed gaps or inconsistencies in your financial management—can creep in and disrupt your business operations. The good news? With the right tools and practices, you can identify and eliminate these blind spots, ensuring a clear and accurate picture of your business's financial health.
Here is how you can stay ahead of financial blind spots and set your business up for success.
Embrace Cloud-Based Accounting Software
Why It’s Essential: Cloud-based accounting software centralizes your financial data, making it accessible in real time from anywhere. This transparency helps eliminate blind spots caused by outdated or incomplete records.
Tools:
QuickBooks Online: Offers robust features for tracking income, expenses, invoicing, and financial reporting.
Xero: An alternative QuickBooks Online option.
Best Practices:
Keep your software updated to leverage the latest features.
Regularly reconcile your accounts to ensure accuracy.
Use Automated Expense Tracking
Why It’s Essential: Manual tracking of expenses can lead to overlooked costs, incorrect categorizations, or missed deductions. Automation ensures every transaction is accounted for.
Tools:
Expensify: Tracks and categorizes expenses automatically, including receipt scanning.
Bill Spend & Expense: Combines expense tracking with budgeting tools for small businesses.
Best Practices:
Set up rules for automatic categorization.
Review and approve expenses regularly to catch errors.
Implement Cash Flow Management Tools
Why It’s Essential: Cash flow blind spots—such as unexpected shortfalls—can cause significant disruptions. Tracking your inflows and outflows ensures you always have enough cash to cover your obligations.
Tools:
Pulse: A simple cash flow management tool designed for small businesses.
Float: Integrates with accounting software to provide real-time cash flow forecasting.
Best Practices:
Monitor your cash flow weekly.
Set alerts for low cash reserves to avoid surprises.
Schedule Regular Financial Reviews
Why It’s Essential: Even with tools in place, financial blind spots can persist if your reports aren’t reviewed regularly. Routine check-ins with your financial data help you identify and address issues early.
Best Practices:
Schedule monthly or quarterly reviews of your income statement, balance sheet, and cash flow statement.
Look for trends, such as rising costs or declining revenue, and investigate their causes.
Involve a bookkeeper or accountant to gain professional insights.
Leverage KPI Dashboards
Why It’s Essential: Key performance indicator (KPI) dashboards offer a snapshot of your business’s financial health, highlighting areas that need attention.
Tools:
Fathom: Provides powerful visualization and analysis of your financial metrics.
Klipfolio: Allows you to customize dashboards with the metrics that matter most to your business.
Best Practices:
Identify the metrics most relevant to your goals, such as gross profit margin, accounts receivable aging, and net income.
Review your dashboard weekly to stay informed.
Conduct an Annual Tax Review
Why It’s Essential: Missteps in tax planning can result in missed deductions, unexpected liabilities, or penalties. An annual tax review ensures you are aligned with tax laws and taking advantage of available credits.
Best Practices:
Work with a tax professional to review your financials before year-end.
Use tools like TaxJar or Avalara for automated tax compliance.
Maintain Separate Business and Personal Finances
Why It’s Essential: Mixing personal and business finances creates confusion and increases the risk of financial blind spots. Keeping these accounts separate ensures clarity and accurate reporting.
Best Practices:
Open a dedicated business bank account and credit card.
Avoid using personal funds for business expenses, and vice versa.
Set Up Alerts and Notifications
Why It’s Essential: Alerts can notify you of unusual transactions, overdrafts, or missed payments, helping you address issues before they escalate.
Tools:
Many cloud-based accounting software platforms, like QuickBooks or Xero, offer custom alerts.
Your business bank may also provide alert options for account activity.
Best Practices:
Set alerts for large transactions, low account balances, and payment deadlines.
Review alerts promptly to avoid costly mistakes.
Commit to Continuous Learning
Why It’s Essential: Financial management tools are only as effective as the person using them. Gaps in knowledge can lead to missed opportunities or errors.
Best Practices:
Attend webinars or courses on financial literacy for small businesses.
Follow blogs, podcasts, or LinkedIn pages dedicated to financial management tips.
Work with an accountant or bookkeeper to deepen your understanding.
Build a Relationship with a Trusted Advisor
Why It’s Essential: A professional bookkeeper or accountant can help you interpret your financial data, spot potential blind spots, and provide strategic guidance.
Best Practices:
Schedule regular check-ins with your advisor to review financial reports.
Don’t hesitate to ask questions or seek clarification about your numbers.
Eliminating Blind Spots: A Continuous Process
Eliminating financial blind spots is an ongoing effort that requires the right tools, regular reviews, and a commitment to staying proactive. By implementing these practices and leveraging technology, you can gain full visibility into your financial health and make informed decisions to propel your business forward.
Next in this series: The Hidden Costs of Not Tracking Your Finances
