Capturing the financial information on you business is easy -- there are many systems available to help you or your bookkeeper keep track of what's going on. Unfortunately too many owners don't get involved in this aspect of their business and later, when they know more, they wish they had different information. The key to getting the right information is the chart of accounts. Bookkeepers normally make the decisions about what is identified and kept separate, which could lead to mistakes.

For example suppose your business uses rubber bands in the production of the widgets you are thinking about making. Now lets assume the business has been running for a while and the only time rubber bands were used was when somebody in the office had to bundle some things - like maybe cancelled checks. So the accounting people lump the purchase of rubber bands in with the account code for office supplies.

Now when you start making widgets one of the things you buy is a box of rubber bands, When that invoice goes into the accounting department they'll code that as office supplies. Now as time goes by, widgets become a real hot product for you and pretty soon you would like to see a recap of all of the costs of making widgets so you can figure out how to save some money. How much you spent on rubber bands is buried - the only way you'll get that information is to have somebody look at every purchase you ever made. Rubber bands bought for manufacturing should have had their own account code.

Successful entrepreneurs know what they will need later and take the steps to set up the systems -- all of them -- correctly, at the start.

Many people think that the financial information, the recording of the history of what has happened only serves to make it easier for the IRS to figure out how much you owe in taxes. While this may be true, well thought out statements, accurately prepared in a timely manner can give a good manager lots of tips as to where to look to solve problems.

A successful entrepreneur starts with projections of what the company will take in and spend for every line entry on the financial statements -- and really good mangers will note the assumptions they are making to come up with each of those projections. Then they require that the financial statements (what actually happened) are prepared with the actual numbers next to the projected numbers and a percentage variance next to each projected number.

Now when the statement hits their desk, say no later that the third workday after the end of the month, (much later and it's old news, probably too late to make a change you would see on the next statements) they quickly scan the pages looking only at the percentage variances. In their minds they already know what an acceptable variance is -- say plus or minus 5%.

So when they see a negative 5%, or greater, that's where they focus their attention. They want to know what happened and they double-check their assumptions. These managers take action. They fix an operational problem, change a system, or make new assumptions.

When I talk to people in my workshops, I always ask, "So what about variances of 5% or greater on the plus side -- those that are good for the business?"

Everybody says something like. "So? What's the problem? The company is taking in more or spending less than it expected."

That may be true, but the really, really successful entrepreneurs want to know why they missed the projections. You see if you continually do better in some areas, then you may be able to pay down debt quicker, or move up the plans for an expansion into another market.

When you miss the projections, you aren't running the business -- the business is running you!

If you read my book you'll learn how to use your financial system to play "what if." This is a practical exercise to help you make decisions.

Learn more about this topic in Chapter Twenty-four in my book.

Entrepreneurs Know How to Use Financial Information -- number fourteen in a series taken from: "How to Evaluate and Profit from a Business Opportunity - The Entrepreneur's Guide"