Good bookkeeping should do more than record what happened. It should make important costs visible enough that a business owner can decide whether those costs make sense.
That distinction became very clear when we reviewed the books for a business client and found an expense that was costing the company approximately $150,000 more per year than necessary.
The expense was there — but the reporting hid it
The issue involved credit card processing fees. The prior bookkeeping method did not report those fees as a separate expense. Instead, the fees were subtracted from revenue and only the net amount was reported.
Mathematically, the books could still balance. From a management standpoint, however, the presentation was a problem. The owner could see revenue, but could not easily see how much of that revenue was being consumed by merchant processing costs.
Why separate expense reporting matters
When credit card fees are recorded in their own expense category, the business owner can ask practical questions:
- How much are we paying each month?
- What percentage of card sales is being lost to processing fees?
- Have those costs increased over time?
- Are different locations, card types, or vendors producing different costs?
- Could another processor or pricing structure reduce the expense?
Once the fees were visible and reviewed as a meaningful business expense, the size of the problem became apparent. That opened the door to evaluating alternatives and reducing the cost by approximately $150,000 annually.
Bookkeeping should support decisions
This is why we believe bookkeeping is not simply a matter of entering transactions into QuickBooks. The categories, level of detail, and reports should all be structured so that the owner can understand what is happening inside the business.
A profit-and-loss statement may technically be correct and still fail to provide useful management information. Good bookkeeping asks a second question after “Is this recorded correctly?” — “Is it being reported in a way that helps the owner run the business?”
What other expenses may deserve a closer look?
Credit card processing is only one example. Businesses should also periodically review recurring expenses such as software subscriptions, banking fees, payroll services, insurance, office supplies, outside professional services, telecommunications, and vendor pricing.
Individually, these expenses may look routine. Over a year, small inefficiencies can become significant.
The bottom line
The $150,000 savings opportunity was not found by simply entering transactions. It was found by looking at the financial information from a business owner's perspective.
That is the approach we bring to bookkeeping at 42 North Bookkeeping: accurate records, meaningful categories, useful reporting, and a willingness to question expenses when the numbers suggest there may be a better answer.