4 Tips For Improving Your Small Business Bookkeeping

Apart from monitoring and planning your small business’s financial strategy, entpreneurs and those new to money management from a business’s perspective commonly struggle with bookkeeping. In many ways, financial strategy and effective planning really can’t begin without consistent and accurate bookkeeping in the first place.

For this reason, we’ve decided to put together a brief list you can use as a reference when devising your preferred method for keeping track of your finances day-to-day, month-to-month, and so on. Not only is this important for simply knowing where your business stands financially at an given time, but it also help alleviate the stress and hopefully shorten the time commitment you’ll put in when tax season rolls around.

If you tend to brush off bookkeeping as a nagging chore, you might want to take another look at the benefits of keeping your books in order. Capturing your all of your expenses when they happen is an important element to maintaining and monitoring cash flow. If your business receives write-offs, keeping a close eye on your records will ensure you don’t end up paying for things you don’t need to. More generally, keeping your finances organized and fully accounted for means less stress and frustration when issues arise and you need to call on your records.

1. Learn the ins and outs of the process before jumping in

Small business owners tend to have a wide variety of excuses for poor record keeping. While some simply don’t see the value to in the time and energy commitment, others consider it too overwhelming to even know where to start. No matter why you’re not being as complete as you should be, it’s important to understand how to get yourself in a position to manage that part of your business.

There are a number of online courses that teach specifically these kinds of skills to entrepreneurs looking for a crash course in introductory bookkeeping. Whether you’re looking for a more generalized bookkeeping instruction, or want to learn the ins and outs of a particular bookkeeping tool, these kinds classes can equip you with the means to be efficient with your records.

2. Pick the right software tool

If you’re reading up on bookkeeping before you’ve launched your business, one of your main focuses in the planning stage should be choosing a software platform to keep your records logged and maintained on. QuickBooks has become something of an industry standard in recent years and if you don’t know where to start looking, it’s a great tool to look into. That said, there are plenty of Cool Tools out there worth exploring.

3. Work on organization

Every business operates on a different workflow, so simply duplicating a partner company’s bookkeeping method more than likely will fall short of achieving actual effective record keeping. Start ironing out your workflow and what kind of bookkeeping plan will best align with your cash flow situation. It may be useful to keep both physical and digital folder systems to collect receipts, invoices and other financial documents you can store to ensure you’re accounting for all finances flowing in and out of your business.

4. Outsource to financial professionals if your budget allows

If you find yourself out of options when it comes to keeping your bookkeeping duties in-house, bookkeepers, accounting firms and other financial professions are always a viable to option for those who want to ensure their records are kept and also have the means to hire outside services.

A major advantage to working with financial professionals besides the lightened workload, is the benefit of having accountant services available to answer questions and offer advice about what steps to take to protect your finances. This is also a great option for those who are capable of handling day-to-day bookkeeping tasks but need assistance setting up software or installing a system you can use regularly.

If you’re a start-up owner and unsure of how to establish a bookkeeping system, give us a call. Our outsourced accounting and CFO services experts can help you navigate these waters.

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Common Small Business Financial Mistakes and How to Prevent Them

For many small business owners who are either new to entrepreneurship or struggling to adapt to some of today’s more innovative business technology, it’s easy to find yourself neglecting some very important financial practices essential to keeping your business on top of your competition in a fast-moving world.

Specifically for those who are newer than others when it comes to starting and maintaining a business, some tasks, which may appear to be of lesser relative importance to other responsibilities, can quickly start to hurt your business in some serious ways.

With that in mind, we’ve put together a list of some of the most commonly seen mistakes small businesses are making as a result of being overworked and undereducated about what matters most as you begin a business venture

Undercapitalizing early on

A major issue, which can plague an entrepreneur’s efforts before they even get off the ground, is having enough money to cover themselves in the short term. Raising initial capital can be extremely difficult unless a number of financial pieces fit together at the same time. While being optimistic about your business is certainly a  necessary early motivator, over optimism often clouds new business owners to the reality of how well they can expect to do during the first year of business.

Relying on your business to be self-sufficient within a year not only demonstrates a lack of practical business chops, but also can potentially lead to financial disaster if lenders are unable to collect on their investments when they expect to. Starting with sufficient initial capital is essential for businesses that experience early turbulence.

To be confident you can avoid this problem, try to mitigate unrestrained optimism about your product or service and be as conservative as possible when projecting your business into the short-term future. If you’re new to business, value the advice of those who have been in your shoes and pulled themselves out of the dark and into long-lasting success. At the very least, make sure you’re well-aware of your initial expenses and gather at least double the capital you project yourself to need.

Insufficient accounting considerations

Tracking your finances is a task that never ends. For those trying to juggle everything at once, it’s often one of the first business metrics to fall by wayside only to be noticed when it’s too late to reverse a negative trend. For business owners, glancing at your bank statements is not enough.

Although you may be entering the market with a ridiculous amount of capital in the bank, turning a blind eye to your cash flow can turn a small stream into a waterfall of lost money.

If you’re too busy to keep track of your books as well as your need to, hiring a bookkeeper either in-house or outsourced just to run basic financial reports can go further than you think. Accounting is much more than number crunching and calculations––it’s what allows you to track your performance with incredible accuracy. Seeing where cash is spent and projecting your growth into the future are two of the most essential parts to keeping a small business afloat in a turbulent business environment.

Poor resource allocation

Capital is meant to be spent; the trick is to know what to spend it on so you can start generating real revenue. When it comes to doling out your initial investments, carefully weigh the cost-benefit of everything decision you’re making.

By being smart with your resources, you can easily stop yourself from overspending before it starts to unbalance your cash flow. Before making a considerable investment in an item or service you’re unsure about, ask yourself if you can live without it––you might be surprised how little you actually need. 

If you’re looking for a reliable accounting or CFO service, contact our start-up accounting and CFO services experts.

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Questions To Ask Your Accountant or CFO Before Starting Your Own Small Business

Finding the right accounting firm or CFO during the initial stages of your small business development plan is a crucial step for many new business owners unfamiliar with the hoops and hurdles of business finances.

In addition to managing your balance sheets and assisting you in establishing a long-term financing strategy to guide your spending, accountants and CFOs can also offer insights into your broader position within the industry you’re breaking into.

This kind of comparative analysis can provide you with a means of evaluating your market impact relative to competitors and related nearby businesses.

Is it possible to set up a cash flow forecast?

As we’ve said in the past, your business’ cash flow is one of the core components that deserves monitoring with a microscope. Often misunderstood or overlooked completely, cash flow can quickly spell disaster for businesses that fail to account for shifts in expenses and significant drops in income.

Your accountant or CFO should be able to walk you through your projected financial expenses and establish tracking guidelines to make sure your income is balancing with the total outflow of cash. Keeping close tabs on your capital is especially essential for entrepreneurs just starting out.

Which business structure best suits my idea for the company?

There are three core business structures small businesses typically adhere to. A sole trader is the simplest of the three and involves a single person trading under their name or the name of their business. Although the business is trading through one person, the owner is still able to hire employees as the budget allows.

The biggest benefit to sole traders is the share of total profit. After taxes, all the profits fall to them as they maintain complete control over the business.

The risks involved with sole trading tie in with sole accountability. With the success of a business tied directly to your name, there is no safety net to fall back on if the business goes under. As a sole trader, you’re responsible for all funds owed by the business including bank and lender loans that are raised to establish yourself early on.

Partnership is similar to this concept with the added element of multiple traders. Instead of a single person being held liable for debts and liability, there are multiple people linked to a common account with any risks therefor spread thinner among each partner. This route naturally requires a great deal of trust on the part of the partners themselves.

When partnerships succeed, the wealth is shared in accordance of a mutual agreement among the parties involved. One of the major differences between partnerships and sole traders is a layer of administration needed to calculate and divide any profits or losses among the partners.

Limited liability companies enjoy the security of having their business liabilities tied to the share capital the owner hold in the company itself. This means the owner’s personal assets are not directly at risk, but often times personal investments need to be made to get the business up and running. A big perk of LLC’s is the extra veil of credibility others see in your business when looking to invest. Lower stakes can often mean more investor interest.

What kinds of financing options are available to me as a new business owner?

In the post-recession era, starting a business organically can mean potentially more wear and tear on your wallet. If you’re interested in raising more funds to grow your new business, accountants can help in a couple key ways:

            • Loan application processes

If you’re looking to obtain a commercial loan, you’ll almost certainly need to submit a business plan. An account should be able to help you review your early numbers and prepare you for any statements required of you.

            • Equity/debt financing 

If you’re bringing in outside investors to help establish your business, or borrowing money from a bank or vendor, your accountant should be able to discuss whether or not seeking equity or debt financing would be advantageous to you.

If you’re looking for a reliable accounting or CFO service, contact our start-up accounting and CFO services experts.

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Cash Flow 101: An Introduction for New Entrepreneurs

If you’re a new business owner or still taking the steps to become one in the future, these tips are essential for laying out your business from the numbers side of the equation.

If you’re an entrepreneur with a business idea you’re sure will find success, it’s important not to lose sight of the foundational financial limitations that often spell disaster for small businesses who lack the foresight to plan their business around a stable cash flow.  This is particularly a problem for business owners who are embarking on their first adventure into entrepreneurship. Running a business yourself can be exponentially more complicated than managing just one piece of it as an employee.

On top of this, it’s important to realize that these kinds of core financial issues don’t only apply to small businesses. Enterprise-level entities can also find themselves reeling from poorly managed cash flows when significant changes in income level or expense fees mount too quickly. For larger companies, adjusting to an increasingly unstable cash flow can sometimes be an almost insurmountable challenge as multiple departments must work together to effectively bring the cash flow back to a balanced state. (more…)

How to Keep Your Business Safe from Cash Burn

Although particularly important to startups still navigating out of adolescence in the local market, the issue of cash burn is important for businesses of every size. Calculating your cash burn rate is extremely useful for forecasting where you can expect to encounter important financial milestones––both good and bad.

For those who have difficulty conceptualizing how exactly this measurement is used, think of it from an individual’s perspective. If someone was employed at a company earning enough to have extra money to put aside in savings every month, their account would slowly grow the more they work. If for some reason they lost their job (and consequently lost their regular income), they could calculate a burn rate based on daily expenses and the amount of money left in their savings account to determine how long they can live off their savings before it’s depleted.

This can be applied to the business world in terms of capital. If you’re a startup who opens the business with $100,000 of capital, you might find that your first year’s monthly expenses will total to about $10,000/month. In this example, you should count on turning a profit by the 10th month in business if you plan on keeping your doors open.

Here’s some tips for staying on top of your expenses and knowing what to expect on a monthly basis:

Cut costs where you can 

If your business is burning though cash faster than you feel comfortable with, you should definitely start thinking about allocating more time and resources to reevaluating your expenses in terms of their utility to your bottom line.

Resist entering into a gamble with the clock by adding more expenses in an attempt to radically alter your brand out of anxiety. First look at your payroll and consulting situation to see if your team can be shaved down to size without sacrificing any vital arteries within your business.

Instead of changing or downsizing your company, try to simply slow it down to a manageable pace until your profits can catch up with your expenses.

Return to the essential aspects of your business strategy

With a burnout date looming in your future, some financial strategists suggest taking another look at outsourcing parts of your company that might be weighing you down in costs. Going even deeper into your expenses to compare outsourcing to internal departments is a good way to slow down your cash burn while maintaining the kinds of services you’ve always offered.

Consider profit sharing

If you’ve established a network of business partners in your area, another option to cut down on capital costs is to switch to equity or royalty payments instead of simple cash.

If large-scale development plans are increasingly being stalled due to less-than-favorable business forecasts, try to negotiate mutually beneficial payment plans through stock options and royalties over an extended period of time. Not only does this give you the luxury of eliminating huge costs all at once, but you also create an environment where others depend upon your company’s success.

Wall Street lawyer and entrepreneur Cliff Ennico laid out the recent surge in this form of B2B partnership financing for creators.com.

… in a difficult economy where most entrepreneurial companies are struggling to break even and taking longer to become profitable, lenders to growing businesses have become tired of waiting for their money. Your business is not currently showing a profit, and it will have to do so before you can legally pay any sort of dividend or distribution to your investors. That may take years. If your business grows rapidly, so will the lender’s monthly royalty payments, meaning they will get their return on investment a heck of a lot faster than they would buying stock in your company.

 

 

Although this strategy is great for smaller startups looking to get traction in their industry, it’s an option that can work for bigger companies looking to boost their capital. The only drawback for larger companies is the equity dilution that can occur if it’s spread too thin between partners.

Broaden your view of success

Without much experience in the modern business world, newcomers to business management can find themselves blind to the periphery aspects of success––namely everything besides profit. What’s more important to businesses tackling constant expense concerns is cash flow.

Your rate of cash burn should be the primary measuring tool for evaluating your cash flow. Remember that timing is one of the key aspects of managing cash flow over any length of time. If you can’t foresee sustainable growth given your current expenses and business trends, reorientation is no longer just an option. Monitor what is growing and what is contracting on a monthly basis in order to make educated adjustments to your expansion plans.

No matter what kind of business owner you are, if you’re unsure of how to monitor your earnings and expenses at the level you’d like, give us a call. Our outsourced accounting and CFO services experts can help you carve a successful future for you and your business.

Photo credit: Mike Poresky