Holding Yourself Accountable, Part Three

Photo by Shermeee.

In this article, I’m going to talk about how you can hold yourself accountable on a monthly basis. The first two articles in this series covered:

1. Daily accountability
2. Weekly accountability

The focus of the first two articles was on things that you can do with words – evaluating your day and your week. When we move up to the monthly level, the focus shifts to numbers. Which means that it’s time to talk about accounting software and your business. Yes, I know that this is a sore spot for many creatives. It was for me for many years, but I got over it.

The lady who forced me into recovery is my now-retired accountant, Helga. She came to the United States from Frankfurt, Germany, and she had a “You vill use it, and you vill like it!” attitude when it came to using accounting software. Her reasoning was quite simple: “How will you know what’s going on in your business if you don’t know your numbers?”

It’s pretty hard to argue with logic like that.

So, Helga got me set up with MYOB, which I’m still using four years later. I like how I generate up-to-the-minute reports with just a couple of keystrokes. And I’ll also confess to enjoying the data entry that’s a necessary part of using any accounting software. (Hey, look, that’s my data! Isn’t it cool?)

At the end of each month, I fire up MYOB for a special Business Checkup. Here’s what this exam covers:

1. The year-to-date profit and loss statement vs. what I had budgeted. In MYOB, this is the Budget Analysis report. In my world this is the “Martha, you should have been a fiction writer!” report. For 2009, I pledge to develop a budget that has a closer resemblance to reality.
2. The year-to-date profit and loss statement vs. the same time frame for last year. In MYOB, this is the Last Year Analysis report. For the first 10 months of 2008, this report has been the “Woot! I beat last year’s revenue and expenses!” report. Which means that it’s time to visit Helga’s successor, Debbie, so we can figure out how to handle the tax bill.
3. Although MYOB can generate a Statement of Cash Flow, it just hasn’t been a must-see for me. Instead of using this report, I scrutinize my cash flow by reviewing my two bank account registers. Here, I’m looking at each expenditure and asking myself if it was really necessary. I’m also comparing the balances at the beginning of the month with what’s showing at the end. If the balances are higher, whoopee! It’s positive cash flow. Lower balances mean negative cash flow, which means that it’s time to step up the collections and increase the sales.While I’m looking at the account registers, I also like to compare them with what the banks say I have. This is just a quick check – I don’t do a formal account reconciliation until the middle of the following month. (Mid-month is also when I pay most of my business bills.)

Although I’m a huge fan of MYOB, it’s still accounting software. It’s very good at generating reports on what has already happened. If you keep up with your data entry and check your numbers often, you can quickly respond to what they’re telling you. For example, if your numbers are saying that your cash flow is sluggish and that a lot of people owe you money, then it’s time to start collecting on your invoices. Or, if you’re finding that your business is more profitable than a year ago, then it’s time to do some tax planning with your accountant.

What accounting software can’t do is project your business’ future. For this task, you’ll need spreadsheet software like Excel. Since we’re talking about things that happen on a monthly basis, here are a couple of projections that you can do in Excel:

1. Next month’s anticipated income and sources. You could call this a sales projection if you’d like. While you’re doing it, ask yourself about the likelihood of each sale. It’s fun to say that you’re expecting five new clients to come on board, each for five-figure amounts, but is this really going to happen? If so, great! If not, it’s time for your sales projection to have a rendezvous with reality.
2. Next month’s anticipated expenditures. I’ve found that these are much easier to project because I already have a trail of bills and bank account registers to review.

If you’d rather not wrestle the above out of Excel, not a problem! There’s nothing wrong with using your word processor, or just writing your projections down on paper. Whatever works. The goal is to make you better at anticipating what will happen so that business reality won’t conk you over the head.

And there you have it. Accountability on a monthly basis. In my next article, I’ll show you how to do it on an annual basis.