Why do we track money?

This may seem obvious and, in some respects, it is, but there's more depth to this topic then just simply keeping track of the dollars. At a bare minimum we have to know the profit, revenue, and of course losses in order to report taxes at the end of the year. But, as was just stated, knowing the numbers helps the company to not only avoid an awkward conversation with the IRS but to plan more effectively, operate smoothly, and become a sustainable business. It's not enough to just be able to purchase resources, pay vendors, and make sure the lights stay on. When you know and understand the numbers, the business can thrive.

What does this look like?

• Tracking the money helps us to make decisions. Assuming that you don't make decisions based on a whim, knowing the numbers and having a plan for various situations means that you can make purchasing decision quickly. This could mean on the fly (but with confidence) or it could mean that, instead of searching to find the numbers, you simply turn on the computer, look at the current figures and make the decision.
• Gives insight into whether or not there's enough capital to make investments. Again, if you have all the numbers in the system, then making a decision about an investment will be easier. Keeping track of the data, not wondering whether or not all the data is there, can build confidence. This again means that you can make decisions quickly, hopefully not losing out on that excellent deal.
• Lenders may want to see the numbers. Whether it's capital investment from a bank or outside investors, the same thing that makes you feel comfortable will make others feel comfortable when it comes to investing money. Having all the numbers in place inspires confidence and shows that you're organized (and in turn less likely to make rash decisions).
• Knowing the direct and indirect cost of operating/producing product. We've written about this before, but just because a product is selling doesn't mean that it's profitable or even profitable enough to keep around. Does the product make enough to warrant the company continuing to sell it? This can't be known without first knowing all the numbers surrounding the product.
• Seeing the trends of when money comes in and when it goes out. This information can bring peace of mind. Every business has seasons. It's definitely possible to simply look at the industry trends, but what if your company is different? Tracking the seasonality of money flow can lower the stress level and help with planning throughout the year.

What to remember: Track as much as you can, but don't over analyze the numbers.