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Keeping More Than Basic Records

I recently read a great article on Ignite Living about the importance of keeping detailed records. The author was consulting for a successful restaurant whose owner wanted to make it even more successful. The owner was strongly considering cutting banquets, which she associated with large amounts of food and work, plus hiring extra temporary staff for the occasion.

However, once the consultant had her create stats for her business, she discovered that the banquets were bringing in a lot more profit than anything else in the restaurant. She knew they had brought in money, she just hadn’t realized what a high percentage of it was pure profit.

The “moral”? Hunches aren’t everything. Check the stats before making a major business or personal financial decision. The situation may be quite different than it feels.

How Individuals Can Use This

The biggest takeaway from this story for individuals working on their finances is to keep track not just of what was spent but how it was spent. If you’re trying to cut costs, for instance, you’ll get much farther if you track exactly where the money is being spent rather than assume.

Despite paying decent attention to what I spend and attention to my budget, I still find myself coming to inaccurate conclusions if I don’t have the numbers right in front of me. There’s only so much budgeting a person can do in her head. I’ll misremember spending much less on gas, say, and much more on eating out. I sometimes even get too depressed to fill in the budget because I predict we spent more than we actually did.

It’s immensely helpful to have detailed stats of your purchases if you’re planning to make some major cutbacks. I don’t keep as detailed records now as I did during Where’s My Money Going? Month because we’re inside our budget. But during that month, I kept track of a lot more than just the category things were in. Had we needed to, I could have used that information to make cuts based on an accurate financial picture, not just what it felt like we were spending the most on.

How Freelancers and Small Business Owners Can Use This

For freelance owners or small business owners, it means keeping more than a ledger. When I’m recording transactions in my [download#4#nohits], I include details about the specific transaction. This means that I can see that in the last 4 months:

  • 50% of the clients were new and 50% were recurring from the previous trimester(s) (I found it fascinating that it came out even!)
  • About 60% of the work was moving people’s sites.
  • Only 8% was setting up new blogs.
  • Over 50% of hourly consulting was done for people who’d hired me to set up their blog or move them to WordPress in the first place.

While I was aware of some of this, the article inspired me to go into greater depth with the numbers I already had. I think I’m going to go back and start tracking these stats from the beginning to see what kind of pattern emerges. Because I’ve got the records, it’ll be pretty easy–but even if I didn’t I think it would be worthwhile to create the records during some downtime.

Backing Up Our Hunches

Hunches aren’t bad. They’re often great sources of inspiration in small business and freelancing. They’re useful in everyday life. They’re just not enough to make major decisions without first consulting the facts.

{ 2 trackbacks }

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{ 5 comments… read them below or add one }

Small Steps to Health May 26, 2009 at 9:26 am

Before I got married, I was tracking what I was spending to the last penny. Now with a husband that have a “running tally in his head” there is no way for me to know. But I am not as obessive about it anymore, just a quick (ok, a long session of balancing our accounts) once a month is enough.

For some reason why husband always think our yearly vacation cost less than it actually does. But I have the numbers to back up my case that we should not be spending so much on activities.

Small Steps to Health’s last blog post: Good Intention is Another Word for Insanity

dawn May 26, 2009 at 12:36 pm

Good point. I can’t tell you how many times I’ve referred back to my monthly expense reports (they go back 15 years) to find exact and precise data on all my spending. It’s something I enjoy doing and really doesn’t take up as much time as you’d think, once you have a system down. And as you pointed out, any projections you may make for retirement or anything else are that much more precise, not guesswork.

Charlie - Ignite Living May 26, 2009 at 1:50 pm

Hey there! Wanted to say thanks for the mention and that you’ve added some really great to stuff to the article.

I love how you break down your income and where it comes from. That’s a great way to find/strengthen a stream of income that might have otherwise been hidden.

Dig it!

Charlie – Ignite Living’s last blog post: Consulting Case Study: How $19,000 becomes invisible

Kristy @ Master Your Card May 27, 2009 at 1:40 am

I’m actually pretty bad about this beyond my budget and balancing my checkbook. I should keep better records of my spending patterns so that I can adjust my budget accordingly. It is something that I’ve had as a goal this year, yet here we are, going into June, and I have not yet done it. I’ve actually been meaning to do this soon, though. I’d like to have a no-spending month challenge with myself and I’d like to see how much it saves me. But, there’s a lot of factors that I need to consider, like which month has the least DVDs that I want to buy coming out, because that’s a factor for me personally. But, when I say no spending, that’s what I intend to do. So, I have to have the facts in front of me.

You make an excellent point here! Instinct and hunches are definitely beneficial and can really come in handy, but when it comes to personal finances, it’s simply better to have the facts in front of you.

Kristy @ Master Your Card’s last blog post: 7 Money Mistakes Newlyweds Make

Monevator May 30, 2009 at 4:40 am

I fall into the same camp as Kristy, and I must admit I treat my consultancy business finances somewhat like my personal finances – pay all the important things first (including setting some aside for tax etc), and then not worry too much about what’s left.

When I’ve run bigger (small!) businesses in the past I’ve tracked everything I can though, down to linking expenses with an assumption of future gain from that expense… Like any spreadsheet you can go too far and get misled, but as you say information gives you the power to make better decisions.

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