5 Rules for Good Bookkeeping

You need a good set of books. Period.

When working with a new client, I typically start with 2 questions:

1. Are you consistently getting financials reports on a timely basis?
2. Do you believe the numbers you're looking at (i.e. are they reliable)?

Don't worry if you answered "no" to either question, we have a helpful set of tactics coming up. For everyone else, you may find ways to make improvements.

Why this matters

No amount of financial analysis, guidance, consulting, etc. will help you without good financial statements. This applies to the Profit Mastery system and all tools outlined in our newsletters. Consider your financial statements a "prerequisite".

This advice is usually frustrating because business owners may not know what a good set of financials should look like.

Rules for a good set of books

1. Simplicity > detail — Simple = easy and you’re more likely to get it done and done right if it’s easy. In my world, simple means a small but mighty chart of accounts (fewer line items on your P&L and balance sheet). If you need more detail, then get it from other systems in your business.
2. Consistency is key — Treat those supplier expenses and customer sales the same way every time. How do you know if you're consistent? As a spot check, pull up a monthly P&L and see how many line items were used only 1-2 times over a 12-month period and merge/eliminate.
3. Precision > accuracy — This might be controversial (any accountant will tell you to be accurate), but the cost/effort required for 100% accuracy in SMB is too high. Precision is faster and more achievable. Use tools like a rolling 12-month analysis to compensate.
4. Automate as much as possible — Use rules, integrations, bank feeds, scheduled reports, etc. These make it even easier for you to get the books done and increases consistency!
5. Get banking and credit cards right — It’s time to undo that half-assed Profit First implementation. You only need 1 bank account (maybe 2) for each business. More accounts = more complexity, more transactions, more time, more room for error. All that means is you’re less likely to do it and get it right. Also, minimize (not eliminate) any commingled business and personal transactions.

Want something more tangible and tactical? Here is a checklist of best practices when it comes to financials and bookkeeping...

It's not all-encompassing but if you feel good about these, then you probably have rock solid financials.

Since we're all in the circle of trust and for the sake of learning... here’s a real life sample of what I consider an excellent set of books (yes, this is one one of my companies). Also, do you notice how it nicely represents the fixed costs in the business? Each month is +/- 10% of the monthly average total expenses. It's a thing of beauty.

Key takeaway — Whether you're a $250k or $250m business, you need a good set of financials (good books). Bookkeeping is like the "unattainable triangle," you can't have all 3 of: fast, detailed, and accurate; pick what's important and get going. Use my framework if you don't already have a good bookkeeper or accountant.