Accounting Related Problems of New Business Owners
You have a great idea for a business. You’ve been thinking it through and making plans. Your friends and family are supportive and think you’ll be great. Then one day you decide to go for it. So exciting! The entrepreneur’s dream come true.
You knew it would take a lot of effort and time to make your dream come true. But…did you plan on the administrative commitment that comes along with running a business? The record keeping, the invoicing, the vendor bills, the payroll, the bank reconciliations. Is it starting to feel like you do more work on the administrative side than you are able to put into the operation and growth of your new business?
Four Accounting Related Problems of New Business Owners –
Problem #1– You’ve purchased a small business accounting software to help yourself get organized and you thought this would be the answer. While it is a step in the right direction, you’ve realized that there is more accounting involved than you realized. Even with the best software you’ll need to have some bookkeeping knowledge.
Problem #2 – You don’t have time to keep your books and records up to date. All new business owners can appreciate this problem. Unless you are starting up a bookkeeping service, bookkeeping is the last thing you want to spend time with when you could be growing and strengthening your business.
Risk of Problem #1 and #2 – You are at risk of losing track of your books and records. This impacts your ability to make good business decisions that are based upon the progress and historical results of your company. It also puts you at risk for making errors that could negatively impact your relationship with vendors, customers and your bank.
Problem #3 – The health of your business is unknown because you do not have books and records that can be relied upon. A lot of businesses will gage their company’s health on the balance of their bank account. This does not take into consideration liabilities (loans and bills) that are coming due. You need to consider all aspects of your financial position – Cash, assets and liabilities. Understanding the health of your business should impact your approach to future decision making.
Risk of Problem #3 – You are at risk of making a decision that is a big mistake. You must have a plan. You must understand your cash flow and your projected cash flow. You do not want to over-extend your business because you misjudged your resources.
Problem #4– You’ve done what needs to be done to have reliable books and records. Maybe you were able to input the information yourself or maybe you had help. In either circumstance, you may find yourself with good data but you are unable to interpret your results.
Risk of Problem #4 – All future decision making starts at the point of interpreting these historical results. You cannot know where you are going if you aren’t certain of where you’ve been. If you are looking for credit from vendors or loans from banks you will need to be able to explain your financials. Banks and vendors want to see that you know your business and that you understand your results. You should be able to conduct a narrative of the company’s activities and position as you walk them through your financials. You want to be able to answer all of their questions with certainty.
Solution –
Your books and records must be kept up to date. Falling behind is not an option. If you do not need a full-time bookkeeper consider outsourcing. A third party bookkeeping/accounting service can:
- Train you on how to enter your data and accomplish basic bookkeeping
- Provide bookkeeping services for you on a regular basis
- Be a trusted advisor to you and your business
- Train you on how to present your financials to lenders
- Help you take the historical data and use it for future decision making
If you do decide to outsource your accounting, remember that all bookkeepers are not created equal. You need to interview your bookkeeper and you need to check their references.
Karen Dzupinka – WE WANT TO SEE YOU SUCCEED!!