Small Business and Startups: 5 Tips For Keeping the Books

The first quarter of the business year is a great time to put in place or review your accounting and bookkeeping systems. Every entrepreneur needs to have a bit of the comptroller in their personality, but relatively few have the skills or patience to learn them. Enter the accounting team: you, your bookkeeper, your CPA, and (sometimes) your tax specialist.

The basics are pretty simple: you need to pay vendors, bill customers, make deposits, and pay your taxes. Beyond that it starts to get pretty complex, pretty quickly. The best way for small business owners and startup entrepreneurs to deal with that complexity is through careful planning, detailed documentation, and careful organization. The worst thing a business owner can do is to let those bills and invoices, pile up which can not only make things crazy difficult when tax time comes around, but can also serve to kill your cash flow and, ultimately, your ability to stay on business.

With the right people in place and the right tools at hand, accounting tasks can become relatively simple and the commitment of your time surprisingly minimal. Here are 5 things to keep in mind when planning for a solid accounting and bookkeeping strategy:

1. Know your accountant.
Larger companies have larger accounting departments, and will often have a CFO, a controller (aka ‘comptroller’), accountants, and bookkeepers on staff to handle the flow of financial data and oversee the quality of reporting. Often these companies will engage an outside tax accountant who specializes in the arcane details of the IRS as well as state departments of revenue or taxation. Small businesses are more likely to hire an outside accountant who is versed in managing books, creating reporting systems, and preparing corporate taxes. Smaller accounting firms tend to be populated with these jack-of-all-trades type accountants and will meet the needs of most small businesses. High-growth startups and mid-size companies will also often outsource accounting, but will usually have at least two accountants on the team, a generalist as well as a tax specialist. A good accountant will not just keep your books in order and your business on the right side of the tax code, but can and should also act as a trusted advisor, someone who can answer your questions, assist with your business strategy, and help you grow and develop your company over time. Where to find this person? My best advice is to ask business associates, friends, or even your attorney. Referrals are the best way to find the right match and to enter the relationship with some certainty and a reasonable level of trust.

2. Keeping the books.
A great bookkeeper is not the same as an accountant and many businesses hire their bookkeeper with some simple goals in mind: keep me organized, get my bills paid, and get me prepared for the work that will be handed to the accountant. Typically bookkeepers are much less expensive than CPAs and can be trusted to record and organize your day-to-day transactions, keep your bank accounts balanced, produce simple reports, and assist with keeping your financial records in order. Many small businesses will use an outside bookkeeper, paid hourly, who is in the office on a regular basis to handle all entries, pay all the bills, and manage invoicing and receivables. Having help with this aspect of managing a small company can be indispensable, and the time it can free for a busy manager, invaluable.

3. Stay organized.
Any business from the smallest of hot dog stands to the largest of public companies creates data. Sales data, inventory data, employee data, customer data… the list is endless. And like any kind of data, if it is not organized and accessible it is completely useless. With accounting data this is doubly-true and the speed at which a small business can fall behind can be breathtaking. Even a few weeks of unrecorded sales transactions, or a month of un-mailed invoices can quickly swamp a small business, destroy cash flow, and put it out of business faster than you can spell IRS. Set up a filing system, keep bills organized and paid on time, be sure customer invoices go out promptly, and put systems in place that will force you to do these things in a disciplined and methodical way. A strong bookkeeper will be worth their weight in gold if they can help you develop the systems you’ll need between now and tax-time 2014. Unfortunately it’s too late for 2013; if you’re not already organized with last year’s accounting, you have some troubles that this blog post will be unable to help you with!

4. Pick your software tool.
A small business owner or manager needs to choose is their accounting software. This is often driven by your choice of accountant: if your CPA uses Quickbooks, it’s a reasonable bet that you will, too. But not all accountants use QB and there is no rule that says you need to either. In fact the trend is away from installed accounting packages and towards SAAS solutions for small business bookkeeping and accounting and many CPA firms are well versed in using those products as well. So, while Quickbooks had myriad features and some very powerful tools and is, in many ways, the industry standard, some of the online options also provide robust tools and feature sets as well as offering the convenience and economy of cloud-based software. Two of the leaders in subscription-based small business accounting packages are Wave Accounting, SageOne, and Freshbooks. These services offer accounting, invoicing, and project management tools as well as standard reporting and tax-preparation features.

5. Review it annually.
Do not under-estimate the importance of a periodic review of your bookkeeping, accounting and tax strategies. It is at your own peril that you neglect to take a hard look at the systems you have in place and the people managing those. Are you doing your accounting in the most productive and cost-effective way? Does your CPA have the right level of industry knowledge to advise you well? Does your tax-preparer have the skills and expertise to keep you (and your investors) on the right side of the law? And finally (the big one), can you fins ways to reduce your expenses while maintaining high-quality controls? Take the time to reconsider your overall accounting strategy and find ways to strengthen and improve it.

Finally,  none of this is to say that a manager should not be involved in accounting, or that an entrepreneur can afford to “let someone else handle all that.” Rather a good accounting strategy should be designed to improve and strengthen your business while keeping you well-informed of your state of financial well-being on a day-to-day basis. Keep your finger on the pulse, but reduce the hours you would otherwise devote to this important aspect of your operations.

Photo: Bryan Costin