In a world driven by information technology, social media, and smartphones, business accounting is a topic that rarely gets much love anymore. Perhaps we all figure there’s a software or an app that’ll do it all for us. While there are plenty of software accounting programs and mobile apps out there, that isn’t what this post is about.
This post is going to detail some really important things you need to know before you set out to start your small business. If you already have a business that’s making money, or you just got started in the last year or two, you can still benefit from the sage advice detailed on this page.
What you’re going to learn here is the real fundamental basics – things you have to do no matter how many apps you have, or proprietary accounting software you’ve bought.
1. Hire a professional
Or at least seek out a pro that you can call whenever things seem to be going south. Even if you once were an accountant, or your business is an accounting business, you should never go it alone. A separate set of professionally-trained eyes is always preferable, particularly when considering that you have a vested interest in every aspect of your business, and they an unconditional interest in keeping your records clean and keeping you happy as a client.
There are countless stories out there about oversights – purposeful or neglectful – that have put a business in the red, or the owner in a tax-induced coma (you know, that feeling one gets when they’re up the creek without a paddle, and they get that unshakeable blank stare that says “I have nothing left to live for, what’s the use?”
2. Business shouldn’t be personal
This is of course, a cliche. However, this is another pitfall that newbie business owners fall into, only to find out that Jeeze, “the IRS isn’t a bleeping bunch of brain-dead idiots after all” – at tax time. You can’t hide your daughter’s braces, or your son’s new hockey equipment in your books. Nor can you buy a new Porsche 911 Turbo and write it off as a “delivery vehicle” for your pizza shop.
Also, keep your personal finances out of the business. It’ll only hurt you later if things go sideways – nobody’s going to give you back the money from your wife’s inheritance that was used to revamp the store, or pay your employees cause you fell short for a month… or two… etc.
3. Accounting is a daily sorta thing
Business owners who save their accounting for the end of the month, or ‘gasp‘ – cover your ears please: The End of the Year – are asking for trouble. Spend at least fifteen minutes (or however long it takes) to do some basic accounting. Input your receipts for the day, your labor costs, payouts, etc. This will save a lot of trouble in the future, and prevent you from having to pull “all-nighters” catching up – this type of scenario is a recipe for mistakes.
4. Make sure nobody owes you
There’s no need to explain this one too much. Most of us are meticulous about getting paid – whether from an employer – or in your case, clients and vendors that owe you money. Still, when business starts to go up, it’s easy to lose track of vendors that owe you for products you returned, rebates you’ve received, or even cost-saving ‘favors‘ that you’ve accumulated from others.
This is a classic reason why you need to write down/type out everything, and why accounting is a daily chore that needs to be completed.
5. Track your expenses
Pretty obvious, I think. Not to most business owners, unfortunately. See, most small business owners don’t realize the impact that a dollar here or there can have. This is sadly why many businesses actually fail despite being in a solid market, with eager hungry buyers waiting at the helm for that business’s products or services.
Labor is a tough one for many small businesses. Business picks up, you ask “Sally” to work overtime to help clear out your order cue, and think nothing of it, until “Billy” “Cindy” and “Max” are also working the late shift and you suddenly realize that you can’t pay them because you have to pay them double-time-and-a-half and there’s not enough money in the business account to do so. This is when unethical business owners screw over their employees, who quit, then the cycle of hiring training, etc. starts all over again. This takes valuable time out of your schedule and hurts your business’s reputation.
You have to track every expense. Even that seemingly innocent trip to the office supply store for a pack of pens, toner cartridge, or heck – buying your employees (even if that’s just you and one other person) a coffee for a job well done. Tracking coffee and other fringe benefit expenses might seem like a hassle, but think about how they’ll add up… this year, next year, in ten years…
Getting the point? Track everything. Each and everything you spend, and make sure it’s subtracted from the balance sheet every week.
To sum it all up:
- Professionals know best.
- Keep business and personal accounting separated.
- Do it each and every day (this applies to a lot of activities in life.)
- Don’t forget about money that’s owed to you.
- Track your expenses – Track EVERYTHING.