How I decluttered my husband's business and reduced debt

Part 1: Financial assessment

This post is the first in the multi-part series where I chronicle how I decluttered my husband's small business

Related post - Part 2: Going paperless

Related post - Part 3: Simplifying the workflow 

Related post - Part 4: Day-to-day decluttering

Because the boxing day fell on a Saturday, I was off work on the following Monday, December 28, 2015. I'd already made up my mind on leaving my job with the provincial government sometime in the new year. I was going to give a shot at working for myself as a declutter coach. 

Then I got a brilliant idea. Why don't I extend my decluttering services to small business owners? I had a very specific small business owner in mind, who happened to be sitting at his desk, across the room, when the idea popped in my head. Without delay, I made the announcement. 

"Guess what? I'm going to declutter your business next year. And I'm starting today."

He turned around and gave me that oh-no-not-this-again-please-don't-make-me-do anything-right-now-I'm-so-not-in-the-mood look. But just answered, "OK." 

After a couple of days of eating turkey and lazing around, I had a lot of energy and was antsy to do something. So I jumped into decluttering his office then and there much to his annoyance. 

How I reduced my husband's business debt

My husband publishes a bimonthly magazine focused on local food and drink here in Halifax, Nova Scotia. There is also an annual local food and drink guide. He also hosts several local craft beer and cider events throughout the year. While his business has grown over the years, he wasn't quite sure just how profitable he has been. 

So, that's where I started. I thought it made perfect sense to start at the bottom line and work my way up. So, as I shifted through the physical clutter in his office, still chill and mellow from the copious amount of turkey and its tryptophan, I started setting all bookkeeping-related documents aside as I mentally explored plans on how to assess the financial health of his business. 

Here is what I thought about while I decluttered:

  1. I need to get my hands on the bank statements. What's his balance on the credit line/credit card?

  2. Locate all the records of outstanding invoices and unpaid bills.

  3. Does he owe any taxes?

  4. Does he keep any bookkeeping records at all?

  5. Is there itemized revenue and expenses record for each issue of the publication and the event? Did he create a budget for each item? Did he exceed or come under budget?

I'm not a bookkeeper. The only related training I had are the two introductory accounting courses at British Columbia Institute of Technology, and that was back in the late 90s. I don't understand the balance sheet, debit, and credit, and other fancy accounting jargons, but I thought I could leave all the technical stuff to our accountant so long as I understood the basics: 

  • how much do we owe people;
  • how much do others owe us; and 
  • are we making more than we are spending?

During the next couple of months, I continued to organize and study the company's financial documents. I also figured that I needed a formal bookkeeping system in place to keep an eye on our cash flow. I've always been good at looking after my personal finance, but things are a little more complicated with a business. 

Apparently, we had a bookkeeper. But since she updated the books only four times a year, we weren't able to see the up-to-date status of the company finances. I thought it was important to be able to access the current financial information, so started exploring the way to do bookkeeping myself. It was sort of a gutsy move since, as I mentioned above, I know nothing about bookkeeping. But it needed to be done. 

I flirted with the idea of using a couple of old desktop-based accounting software that I found in a drawer. They both had the interface so outdated and ugly it almost made me cry. So I got rid of them.

Then I thought about setting up a spreadsheet to record all expenses and revenues. But since I don't even know the difference between journals and ledgers, I decided that would be a very bad idea.

Finally, I looked into web-based bookkeeping programs and tried Sage and Quickbooks, and I fell in love with the latter. I loved how easily it synced with the online banking accounts, so there is no need to enter transactions manually. Actually, I met several small business owners, who, like me, didn't have any bookkeeping background, and wouldn't shut up about how much they loved using Quickbooks. (Just so that you know, I'm not getting paid by Quickbooks to endorse their product or anything like that.)

With all current transactions recorded in Quickbooks, all corporate tax and HST (Harmonized Sales Tax) related documents located, and a list of all outstanding invoices and unpaid bills created and their balances summed up, I was able to figure out just how much debt my husband's business had. It came to around $20,000. 

During 2016, I kept close eyes on the budget, revenues, and expenses for each project we carried. I asked my husband to discuss with me before he incurred any expenses, however small (Yes, even a $5 font package!), which helped us to be really careful and intentional about spending money. 

In this way, we cut all non-essential business expenses. We also tightened up our business's focus and moved away from areas that didn't quite align with the core business. 

And the result? At the end of 2016, the debt was reduced to around $10,000 which is 50% in reduction! Woot woot!

Stay tuned for the part 2 of the series!

*Disclaimer - I am not a bookkeeper or an accountant, so you're completely on your own if you decided to set up your own bookkeeping system based on what I wrote above. Thanks!

[Edited to add]

I received a message from Libby from Australia which I found helpful, and so I'm sharing it with you with her permission. Thanks, Libby!

I am an accountant, and while most accountants like to make it sound like what they are doing is rocket science, it's not - at its core, bookkeeping or accounting is simply organising information. 

Your business accounts should be telling your story, just in numbers, not words.

The art is making the information relevant to the business and helping the business owners to understand the numbers. Just like any new language, it takes a bit of time, effort, investment, and a helpful coach, to get to the stage where you understand the nuances.

Yes, for the accountants out there, there are rules and there are technical and legal reasons why certain things are calculated or presented in a particular way, but if the business owner keeps coming back with the same question or issue or mistakes we need to think about learning to use their language to help them understand the value of ours.

By the way, a couple of other accounting packages to check out are Xero and MYOB (both more popular for small businesses in Australia).