Many small business owners know enough about accounting to be dangerous. Excitement for the accounting process doesn’t generally compel anyone to take the entrepreneurial leap, but once they do, they find themselves smack dab in the middle of managing accounts payable and receivable, as well as working through what feels like myriad financial data that needs to be collected and reviewed every month. What’s more, they can stumble over some pretty common small business accounting pitfalls that could be avoided.
New business owners often don’t think they have the cash flow to hire a part-time bookkeeper (although they are available and would likely prove to be a good investment), and some treat their tax accountants as a transaction rather than a consultant who could help them reap more profits. In other words, they do it the hard way.
To help you avoid some of the challenges that have kept others from building more profitable businesses, here are 3 missteps to avoid that will help you build a successful business without a lot of unnecessary pain:
As a small business owner, staying on top of the bookkeeping is a critical component of building a healthy and thriving business. Some business owners relish the time they spend doing their bookkeeping. Unfortunately, not all business owners share this sentiment.
Because they view the process as a necessary evil, they often leave it for the end of the day, which ultimately means tomorrow, and then the next day, and then the next. Eventually, they spend a day or two catching up with bookkeeping, which makes it a chore that’s often rushed through. This strategy doesn’t allow them to dive into the numbers and become the business’s profit expert—and probably introduces errors into the accounting process.
You’ll be much better off dedicating some time to the accounting process first thing in the morning when your mind is fresh and you don’t feel rushed. This approach will give you a better opportunity to dive into the numbers and recognize opportunities to reduce costs, increase profits, etc.
Many small business owners think the accounting process is all just a bunch of mumbo-jumbo. Like most specialized disciplines, accountants sometimes speak a language all their own. As a business owner, you don’t need to be an accounting expert, but you do need to understand the basics of small business accounting and how to use it in your business.
Understanding the accounting process is important even if you have a bookkeeper and don’t do your own accounting. Not every small business owner needs to become an accountant or an accounting expert, but he or she does need to know enough about the process to understand the common financial reports, interpret the data, and make decisions based upon what the financial reports are revealing to you about the inner workings of your business.
Fortunately, resources are available for anyone interested in learning more. SCORE is a group of retired executives who are anxious to help your small business succeed by helping you understand what you might not already know. Volunteers are all over the country—probably in your city— with no charge for the advice and guidance they provide. In addition to SCORE, many community colleges and universities sponsor SBDC’s (Small Business Development Centers) that are also available to help business owners learn more about things like marketing, operations, sales, and accounting. There are also more online resources than you can count for anyone interested in learning more about the accounting process. Simply Google “small business accounting” and you’ll see an overwhelming number of listings for advice, training, and accountants for hire.
Your CPA or tax accountant has a lot to share. If the only time you talk to him or her is at tax time, you aren’t getting everything you can out of that relationship. Leverage the specialized knowledge your accountant has spent a career accumulating to help make your business more profitable.
Be prepared—it might cost you a little bit. You should expect them to charge you for the hour or two they regularly spend with you looking at your business to determine where you might be able to capture profits you didn’t recognize, but it will benefit you and your business by helping you become a more capable business owner while making your business more profitable.
Talk to your accountant or CPA about taking your relationship to the next level. They have an intimate understanding of how your business works and will likely welcome the opportunity to help you build a healthy and thriving business. You might even be surprised at the easy-to-implement actions suggested that will yield additional profit you didn’t realize was there.
Many easy and inexpensive resources are available to help you learn more about the accounting process. If you have any suggestions to add that could help other small business owners, feel free to share them in the comments section.