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Business Finances: An Interview With The Experts

 
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Profit & loss, employee taxes, credit card fees, and balance sheets. What?!

Unless your business is being a financial planner, bookkeeper, accountant, or an engineer you probably didn’t get into business to recall your Accounting 101 class from college. You got into business to make/sell/perform your craft. That's why we decided to pull the experts when it comes to business finance. With these tips you can get back to doing what you love - and do what you have to do more efficiently! 

We reached out to our friends at Accounting Plus and Bloom Bookkeeping, because we are 100% aware that we are not the experts in numbers!

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1. What are the top 5 key items that new businesses don’t do correctly when it comes to the financial side of starting a business?

- Comingling- They don’t separate business expenses from personal expenses (they use 1 account for both, and that makes bookkeeping very challenging) - this logically happens at first, before the business LLC and accounts are set up, but operating this way for too long is not good

- No budget or forecast of startup expenses- They spend too much up front, they start spending on the top of the line everything, equipment, computers, supplies, advertising and spend all their cash on startup with no plan for sustaining the first 6 mons to a year while they are getting revenue up.

- They try to do it all themselves to “save” money, but this isn’t sustainable because there are too many hats, they should outsource payroll and things that are time-consuming

- Rush into it- starting a business takes time, and they should consult with experts, and network with business owners so they can start to learn the ins and outs. Running a business is a learning process, it’s not something you can read in a book and be good at it from the start

- Don’t have set goals- they don’t set any goals and are just flying by the seat of their pants

2. What is a common misconception about what you do? 

That we just crunch numbers and are just here to track the ins and outs, pay your bills for you, etc. When in reality, we are your business partner! You can rely on us for advice, you can ask us questions, and ask for help when you don’t understand what your financials mean.

3. What advice would you give to a business that has been operating for over a year?

Spend time each year learning about your financials, growing and educating yourself, don’t just leave your papers with us and hope we figure it all out. Sit down with an expert that knows what the numbers mean and learn how to read your financials because it is your job to know what’s happening with the financial health of the business.

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1. What are the top 5 key items that new businesses don’t do correctly when it comes to the financial side of starting a business?

- Not understanding and using a Balance Sheet: Often business owners (new and seasoned ones) don’t understand the various sections of the Balance Sheet causing confusion when they need to enter something that doesn’t fall in the simple income vs expense categories that most transactions will fall.  The Balance Sheet is recording their fixed assets, loans, and equity, just to name a few. I see loans and equity contributions entered as revenue which distorts their bottom line and could result in miscalculated taxes. There is software on the market that claim they are “accounting software” but really they are glorified checkbooks that spit out a pretty P&L. If you can’t print a balance sheet, it’s not accounting software.  Most business owners find this out when it’s time to go to the bank for a loan or line of credit and find that now they must create one from memory instead of doing it correctly from the beginning.

- Not keeping track of expenses when they are first starting:  Entrepreneurs, especially serial entrepreneurs, don’t run out and open a new checking account with every new business idea they have to keep track of the income and expenses.  Heck, even to open a checking account you must have a business name. And to register that business name costs money…money that most business owners simply take out of their own pocket.  But that money paid is a business expense and should be recorded as such in their financial statements so that it goes towards calculating their net income, which will ultimately go into their taxes.  Granted, paying to set up a dba or LLC is fairly inexpensive, but I’ve seen thousands of dollars that went unrecorded simply because the business owner forgot they spent that money on the business.

- Bad chart of accounts: If new business owners are using a software such as QuickBooks, a chart of accounts will be created for them as they begin, and a lot of business owners think they can’t customize it to what they should be tracking, or perhaps they don’t know what they should be tracking.  For income, there are sales of service and sales of products; but how is the owner going to dig in deeper to see what service they are providing that is truly bringing in the most net profit, for instance? Similarly, with expenses. It’s easy to have a catchall of “supplies” but how can sound decisions be made if the owner is unsure how much supplies it takes to provide their service versus general office supplies if it’s all going into one category.  The chart of accounts should be detailed enough to aid in decisions with a quick glance, but not too detailed that the P&L is overwhelming.

- Knowing how to set up their business with the state and city:  Many times I’ve seen people file with the department of revenue that they are a sales tax paying entity (meaning they are selling tangible items) when really they are selling only selling services and won’t be collecting or remitting sales tax.  But now they have another form that they need to remit, which is unnecessary.

- They try to do everything themselves, including the things they aren’t good at.  Business owners start their business because they are passionate about their one thing.  Most of the time, they aren’t passionate about the marketing and/or accounting pieces that go with owning a business.  Know what you’re good at and what you’re not and when to outsource. For the new businesses that are starting out and don’t think they have the funds to pay for a bookkeeper, we can at least create a good chart of accounts together and train one-on-one so they have a better idea what to do themselves.

2. What is a common misconception about what you do?

That all I do is data entry when my specialty is running reports and using the numbers to dig deep into how your business is functioning and how to move forward.  How do you know how much to charge per hour if you don’t know what your costs associated with that hour really are? Or if you are billing enough for your service if you don’t know the cost of all the items (supplies and time) that go into producing that service.

3. What advice would you give to a business that has been operating for over a year?

Stop spending your time taking care of the bookkeeping part of your business.  It’s probably a part that you have realized that you dread doing, so much so that it doesn’t get done.  You’ll do it once, maybe twice a year to get ready to file taxes, but that’s all you’re going to use your financials for.  Instead, use your numbers to help you grow and make decisions.

To learn even more from our experts, join us on Thursday, August 16th for their workshop Basics of Accounting & Quickbooks Online. Learn more and purchase your ticket here. 

Amanda QuickComment