When we talk about business success, it is very easy to focus on the obvious things. Turnover, profit, growth, more customers, a bigger team or perhaps reaching a particular financial target.
But I think there is another question that is just as important: what does success actually look like for you?
For some business owners, success means building a substantial company, employing a team and continuing to grow. It might mean opening another location, investing in new equipment or eventually building a business that can operate without them being involved in every single decision.
For someone else, success might look completely different. It might mean earning a good income while being able to collect the children from school. It might mean no longer working until 10pm every night, having your weekends back, taking a proper holiday without worrying about what is happening back at work, or simply having enough financial security that you do not constantly feel like you need to be chasing the next sale.
There is no right or wrong answer. Your business should ultimately support the life you want to build.
But whatever success looks like, you need to know whether your business is actually moving towards it.
One of the biggest differences between simply "doing the books" and actually using your financial information properly is how quickly you are able to act on it.
If your bookkeeping is kept up to date, you can produce meaningful management accounts regularly and use them to understand what is happening in the business while there is still time to do something about it.
For example, imagine your month ends on 30 September.
If your bookkeeping is up to date, your September figures could potentially be reviewed within the first few days of October. You can look at your turnover, gross profit, gross margin, overheads, operating profit and cash position while September is still fresh in your mind.
You can ask what has changed, why it has changed and whether anything needs to happen as a result.
Compare that with looking at figures from the previous quarter two months after the quarter has ended. By then, the business has already moved on. You may be looking at April to June figures in September, when you are already well into the next quarter.
The information may still be useful, but the opportunity to act on it has diminished.
Timely information is what turns accounts into a management tool.
A set of management accounts should be more than simply looking at your Profit and Loss report.
Depending on the business, regular management reporting might include the Profit and Loss Account, Balance Sheet, cash position, gross profit and gross margin analysis, overhead analysis, debtor and creditor information and comparisons against previous periods or your budget.
For some businesses, it can also be useful to look at key performance indicators that are specific to that business.
That could mean revenue per customer, average transaction value, labour costs as a percentage of turnover, project profitability, recurring revenue, customer acquisition costs or other measures that tell you something meaningful about how the business is performing.
The important thing is that the information is relevant to the decisions you are trying to make.
A £500,000 turnover business and a £50,000 turnover business will not necessarily need the same management information. A professional services business will have very different useful KPIs from a retail business.
This is where good bookkeeping and management reporting can start to become genuinely valuable to the business owner.
One of the things business owners can sometimes miss is that profit and cash are not the same thing.
You can have a profitable business and still experience cash-flow pressure.
You might have £30,000 of sales sitting in outstanding invoices, while several large supplier payments, VAT payments, PAYE and other liabilities are due.
Your Profit and Loss may look healthy, but your bank account tells a very different story.
That is why looking at the Balance Sheet and cash position alongside the Profit and Loss is so important. It gives you a much more complete picture of the financial health of the business.
When you combine that with forward-looking cash-flow forecasting, you can start thinking about what is likely to happen rather than simply reporting what has already happened.
Good management accounts should not just give you a collection of figures. They should make you ask questions.
Why has gross margin fallen this month?
Why have overheads increased?
Are we charging enough for the work we are doing?
Are certain services significantly more profitable than others?
Is our debtor position getting worse?
Are customers taking longer to pay?
Can we afford to recruit?
Can we afford to increase salaries?
Can we take more money out of the business?
Is there enough cash available to fund the investment we have planned?
And perhaps one of the most important questions: are we making enough money for the amount of time and energy we are putting into the business?
Those are not simply bookkeeping questions. They are business questions.
And they are much easier to answer when you have accurate, up-to-date financial information in front of you.
I don't think the role of a bookkeeper should simply be to make sure everything is coded correctly and reconciled at the end of the year.
Of course, the bookkeeping needs to be accurate. If the underlying data is wrong, the reports produced from it will be wrong too.
But once the bookkeeping is accurate and up to date, there is an opportunity to do much more with that information.
Regular management accounts can give you a consistent view of performance. Comparing actual results against previous periods or a budget can highlight trends and variances. Reviewing gross margins can help you understand whether your pricing and direct costs are where they need to be. Looking at the Balance Sheet can highlight changes in working capital, debtor levels and liabilities.
And doing this regularly means you can identify something in October rather than discovering it when you are preparing the year-end accounts the following year.
That difference matters.
Because the purpose of financial information isn't simply to tell you what happened.
It is to help you decide what to do next.
There is also a very practical side to all of this.
If you are spending your evenings reconciling transactions, chasing receipts, trying to understand your Profit and Loss or working out whether you can afford to take on another employee, that is time you are taking away from somewhere else.
Your business needs your expertise, but it does not necessarily need you to spend your evenings doing bookkeeping.
If your time is better spent looking after clients, winning new work, developing your services, managing your team or simply being at home with your family, outsourcing the financial administration can make sense.
Not because bookkeeping isn't important.
Because it is important enough to be done properly.
And once the bookkeeping is being maintained properly, the information can be used to actually understand and manage the business.
Maybe it is growing the business, increasing your profits and building a team.
Maybe it is creating something that you can eventually step away from and still have value.
Maybe it is building a business that you can eventually sell.
Or maybe it is much more personal. It is being able to earn a good living without working every evening. It is having your weekends back, taking the holidays you want to take, being there for your family or simply having a business that gives you more freedom rather than taking it away.
Whatever the goal is, you need to understand where your business is today if you are going to get there.
That means looking beyond the year-end accounts. It means having current, accurate financial information throughout the year, reviewing it regularly and using management accounts to understand what is really happening inside the business.
Because by the time you receive your annual accounts, the numbers are history.
By reviewing your figures regularly, you have the opportunity to do something about them while they still matter.
And ultimately, I don't think most people go into business simply because they want to have a business.
They go into business because there is something they want it to give them.
More financial security. More freedom. More time. The opportunity to build something of their own. A better life for their family. Or the chance to create something bigger than themselves.
A good bookkeeper can help you see whether the business is moving towards that goal.
They can give you the numbers, the insight and the financial information you need to make decisions with confidence, rather than simply hoping you are heading in the right direction.
And sometimes the most valuable thing a good bookkeeper can give you is not another report or another set of figures.
It is the confidence to make a decision because you understand what the numbers are telling you.
You might decide to increase your prices. You might decide to employ someone. You might invest in the business. You might realise you can afford to take more money out. Or you might decide that growth isn't actually what you want right now.
Whatever the decision, having accurate and timely information means you are making it based on your business rather than guesswork.
Because ultimately, the goal isn't just to run a successful business.
It is to build a business that helps you achieve the life you actually want.
And a good bookkeeper can play a much bigger part in helping you achieve that than simply keeping the books up to date.
