Where did all the money go? My intention for this blog is for the person who is starting a business or one in its infancy. Well, maybe it applies to those of us who have been in business many, many years and are trying to figure out where all our money is going.
After all your hard work, working well into the night, on weekends, seven days a week, and you look at your financial statements (you have them, right?) and then you see there's no where near the profits you think you should have. Where did it all go?
It could have gone many places. That is the importance of financial statements and more importantly a general ledger. The info on the general ledger comes from your chart of accounts. The chart of accounts is a listing of expenses from direct and indirect labor, materials, labor burdens, gas, auto and equipment repairs, phone, rents and a slew of other expenses you pay throughout the month and year.
A critical piece of the financial statements and general ledger is accurate cost accounting. Your expenses have to be coded to the correct expenses on the chart of accounts. With the monthly financial statements you need to review the general ledger. You can see every check that was written and to what expense it was coded.
Why is this important? There are many reasons, but two specific ones are, 1) You can see where all your money went, and 2) if everything was coded correctly to these chart of accounts, you can forecast and budget for the coming year and either increase, reduce or keep the same amount of money in your upcoming budget.
I am not a financial guru and have never taken any accounting classes. My explanations above may not be 100% on the money so to speak, but I have learned throughout the years by studying the financial statements, cash flow statements and really looking at the general ledger to see where we are spending our dough and if those expenses were coded correctly.
So if you are just starting out or fairly new to the business, I highly recommend you get with an accountant or bookkeeper and get your chart of accounts established and start coding your expenses so you can see where all your money is going.
If you would like to see our chart of accounts, please email me and in the subject line type chart of accounts. My email is firstname.lastname@example.org.
Remember — all of the flowers of all the tomorrows are in the seeds of today.