Things that Should Scare Small Business Owners

HalloweenWhen you’re running a business, there are a lot of things to consider. From payroll to people to marketing, you have a lot on your plate. In fact, we’re guessing there’s more than a few things that keep you up at night.

There are all sorts of scares lurking around the corner when it comes to owning and running a small to mid-sized business. Here are a few of the ones we find particularly frightening:

You hire without doing your research.

It’s true, you wear a lot of hats as a small business owner. It’s also true that quite a few of those hats are ones you don’t know anything about. Small business owners normally get into business because they have a dream to pursue, not to worry about the day-to-day details of running a business.

To solve that problem, you hire quickly for areas you don’t know anything about. Sounds good right? Not so fast …

  • Are they qualified? When you don’t know anything about the position you’re hiring for, you don’t know if the person (or consultant) is qualified to take on that role. For example, if you’re thinking about hiring someone to look at your financials, do you want a bookkeeper or a CFO? Or somewhere in between? There are several differences, including experience, duties and even pay.
  • How do you measure success? If you don’t know anything about the subject or position you’re hiring for, how do you measure success for that individual? How do you know your expectations and proposed timelines are reasonable?
  • Have you checked all the boxes when it comes to hiring? Another thing to consider is the entirety of the hiring process. Maybe you found the perfect candidate and you want them to start right away. But have you taken into account the necessary steps when it comes to hiring? There are several forms to fill out, items to consider and that pesky thing called onboarding. All of this has to be taken into account before you make that hire.

We’re all for hiring (whether it’s an employee or a consultant) to help you run your business. Just make sure you do the research and know what you want and need in order to help your business run more effectively.

You don’t take your financials seriously.

Having up-to-date, accurate financials is of paramount importance. If you don’t, you’re in for a world of hurt. Without it, you don’t know how much money you’re making (or losing), nor can you even begin to understand the basic state of your business.

Further, you won’t be able to make strategic business decisions and set a course for the future of your business. Plus, financial information is pretty important to creditors, investors and buyers.

Only 40% of small businesses say they are “extremely” or “very knowledgeable” in accounting and finance. (source)

Bookkeeping is not as simple as just throwing numbers into a spreadsheet. You need to understand basic accounting terminology in order to make informed decisions. For instance, just because your books say there’s money coming in, doesn’t mean you’re in the clear. Cash flow and profit are two different things.

The solution? Invest in accurately tracking your business financials. Find a consultant or hire an accountant (once you’ve done your research) who can help you navigate your current situation and also look out for potential pitfalls.

You don’t have accountability.

Success matters to small businesses, especially in the early stages of your company. But what does success mean? Can you define it in a measurable way? Can your employees?

Businesses work when roles are defined and individuals understand their performance expectations. That’s why it’s important to have KPIs (key performance indicators) in place for your company and your employees.

It’s here where we remind you that KPIs are quantifiable measurements for critical success. Quantifiable is key as it helps you track progress and whether or not you’re accomplishing your goals. If you’re not tracking, then you have no idea if it’s working or if you need to find ways to improve.

You don’t value your product … or yourself.

Let’s start with the basics … one of the keys to starting a business is that you have a product or service people actually want. Once you’ve got that, the next step is pricing it effectively.

Often, business owners play the cheapest option game to get their product into the market. This path undermines the real value of your product. Plus, it’s a lot of work to come back from under pricing your product.

Take the time, instead, to do some market research and really find a price point that shows the value of your product and also allows for market entry. Also, ensure the price point you’ve chosen will help your business financially … which is why it helps to have up-to-date financial information from the beginning.

But let’s not forget about YOU. In addition to your product’s value, you have value as the business owner. At the beginning you’re trying to do it all. It’s important to realize when you’re in too deep and you need help.

“Your new venture demands that every aspect is handled by someone who understands what they’re doing. And no amount of good intention will turn an IT specialist into a good bookkeeper.” (source)

The moral of the story here is to value yourself. Value your time, know your strengths and why you got into business. Let someone whose passion is for numbers or marketing or HR or whatever the subject may be handle the tasks you need done. And remember, if you don’t want to hire someone full time, you can always outsource it.

You’re not playing by the rules.

To say there are more than a few updates to rules and regulations affecting small businesses each year would be an understatement. Did you know, for instance, the General Services Administration annually updates the federal maximum per diem rates? This update would affect any business that has employees travel for work.

Or did you know that several states and cities are now introducing mandatory paid sick leave policies? If you have workers, your policies (if your business is in any of the affected areas) will have to align with this new ruling.

These are just a few examples of the rules and updates small business owners face on a regular basis. Many of these rules directly affect your financials, how you report information about your company and its customers and the benefits and rights your employees get.

That’s why it’s important to know what’s going on and ensure you’re in compliance. Find a consultant who can stay on top of these updates and regulations and ensure your business is following the rules.

 

 

 

 

 

 

Don’t be a Dud: How to be a Shiny Firework!

With it recently being the Fourth of July, you likely took in many red, white and blue festivities. We’re willing to bet you also watched some fireworks displays.

When it comes to fireworks, there’s nothing quite like the glitter and pageantry, as well as the loud booms and inevitable oohs and ahhs for every firework that goes off. That is, unless there’s a fizzle. We’ve all seen the ones that lift off … and never actually explode.

The same can be said with small businesses. There are companies that lift off the ground and soar to new heights, and then there are others that lift off and never reach their full potential. In other words, they fizzle.

While we can’t be your source for everything business related (though we could certainly try … we’re pretty awesome like that), today we’re talking about four (for 4th of July … corny, we know) accounting issues that will help your business be a firework rather than fizzle into the night sky.

#1: Taxes: DIY v. Business Advisor

Also known as everyone’s favorite word and subject for that matter. If you feel like you’re constantly banging your head against a wall, or continually hearing from your pals at the IRS, you’re not alone. Did you know that 52% of small businesses say they’re paying too much in taxes or are unsure of the amount? In other words, you’re not the only one. It’s hard to even begin to know all the possible deductions you can take, the information you need and the planning you’ll want to do.

The best way not to fizzle in the wake of the overwhelming tax burden is to use a professional. Use someone whose job is specifically tax focused (there are definitely people out there … and they even like it!) who can help you look at the overall picture of your company and find ways to ensure you’re paying just the right amount, and not a penny more (or a penny less). The money you spend on a tax advisor will be minimal in comparison to the money you may have to pay for not doing it correctly. In fact, they may even save you money as they know what to look for and how to minimize your tax liability.

#2: Using a Spreadsheet

A sure fire way to fizzle is to not have any idea what your finances look like … or how your business is doing. It’s also really hard to track your business, and get useful metrics, when you’re using spreadsheets to track your financial data.

Don’t get us wrong, as numbers nerds spreadsheets do get our hearts racing. However, they are not the most efficient or effective means of tracking financial data. There are a number of accounting software options that can easily track, compile and show you your current financial state.

So if you’re using a spreadsheet, or software that’s not giving you the information you need, it might be time to think about a change. Not sure if you’re ready to make the change? Ask yourself these questions.

#3: Knowing Your Finances & What They Mean

At the risk of sounding like a broken record, your finances are important. They tell a story about your business and help you see where you’re going. Numbers are also probably not the reason you got into business, so they’re frustrating and even aggravating at times. In fact, only 40% of small businesses say they are “extremely” or “very knowledgeable” in accounting and finance.

So if you’re in the vast majority that don’t have a solid accounting knowledge base, what do you do? To begin, we really think you should have a good foundation of financial knowledge and at least understand basic concepts (we talk about a lot of them on this blog). But beyond that, hire someone with CFO or controller level knowledge (here’s the difference) to help you.

And before you even begin to say you don’t have the money for a full time hire, remember you can always OUTSOURCE it. These numbers nerds will help you not only understand your current financials, and make sure they’re cleaned up, but they can also help you with larger picture ideas and goals … feel free to ooh and ahh at any time.

#4: So how’s business?

Can you answer this question honestly … do you know the health of your organization? Remember, just because you have money in the bank doesn’t mean you’re doing great (cash does not equal profitability).

It’s important to know the overall health of your business, as well as ways you can improve. Here are a few ways you can gauge the health of your business:

  • Compare yourself with other fireworks (see what we did there) via benchmarking.
  • Projections and forecasting, which you can only do if you have accurate financial data (see numbers 2 & 3).
  • Have up-to-date books with accurate financial data … please tell us we don’t have expand further on this.

The moral of the story

All of these are easily attainable and can change your fizzle into a firework. Just make sure to take the time to dedicate to the numbers part of your organization and find a trusted business advisor to help you along the way. From there, you can watch your business rocket into the sky and shine bright as ever!

From all of us at Eide Bailly, we hope you had a wonderful 4th of July!

Is it Time to Upgrade?

Accounting software is a great tool for your business. It helps you keep track of invoices, let’s you see where are your money is going and even allows you to access your information basically anytime, anywhere.

But if your accounting software is out of date, it actually might be doing more harm than good for your business. Here are some signs that it might be time to look into an updated system.

  • Are you still communicating with vendors and customers through email or even *gasp* snail mail? If so, it may be time to look for a system that provides an easier way to communicate.
  • If your desk is covered in papers and you have paper invoices and timecards coming out your ears, it’s time to stop endangering the tree population and look into a system that can do this electronically.
  • It might be time to look into some new software if your system doesn’t allow you to look at your information anytime, anywhere. This includes your cell phone – many systems allow you to have all of your information at the swipe of a finger.
  • Is your chart of accounts endless? Or, maybe you need to create a whole new set of accounts each time you add another profit or cost center (grants, jobs, products lines, etc.). Either way, both are major signs that it’s time to upgrade and update.
  • Your account system should do what you need it to, without you having to perform extra steps and work arounds. If your system is doing the exact opposite of its intended purpose, it’s time for something new.
  • If your vendor has completely stopped (or won’t be for much longer) supporting your software, you’ll need to upgrade. Although this sounds pretty obvious, we see this problem quite often!
  • It’s time to upgrade to a new system if you’re still using spreadsheets to track date and compute calculations. (Hint: accounting software does this for you!)
  • Here’s a big one. Do you enter manual journal entries – maybe you’ve even compiled them in your spreadsheets? Are you operating in several systems that don’t sync together? Time to get on board with a new, updated system!
  • Consider how much time you are devoting to closing the books each month. If you’re manually creating reports and manually completing the consolidation process, you’re wasting your time. An updated system can help you save your time to dedicate to other parts of your business.

If any of these common warning signs sound like something you are experiencing, now is probably a good time to start looking for new, updated accounting software. Although the transition won’t be easy, the benefits to your business will be worth it!

Have Questions? We have Answers

In our line of work, we get a lot of questions on anything and everything related to owning and operating a business (and we’re happy to answer them, too)! While a lot of these questions are usually pretty easy to answer, sometimes we get a few that really make us think. Even then, we enjoy researching and finding the answers to help business owners be successful.

So, what questions do you have about your business? We would love to help you reach your dreams and goals.

In case you think your question might be too far out there, we promise it’s not. Check out some of these questions (and our answers) to get you started on finding the information you need to watch your business succeed.

“I have invoices coming out of my ears! What do I do with all of them?”

When you have a large amount of invoices to deal with, it’s easy to get overwhelmed and lose track of what needs to get done. When invoices aren’t being properly managed, your business can see some serious negative side effects, such as fraud. Following this list of tasks can help you make sure you’re keeping everything in check. Looking to an automated system, such as QuickBooks, is also a great way to keep your invoices at a manageable level.

“Where in the world did all of my cash go?”

This question is more common than you may think. While your business may be profitable, you can still be running out of cash, which might be a concern. Financial struggles can be hard, but our professionals are available to help. Check out this blog – and then, let’s talk!

“Why don’t I have enough time to do everything that needs to get done?”

We get it: owning and operating a business means you have a lot on your plate. From accounting and finance, to human resources to the day-to-day operations, you probably don’t have enough time to do it all yourself. The good news is you don’t have to! Consider your team of employees. What can you delegate to take some of the burden off your shoulders and free up some time? Another option is outsourcing. When you outsource some of your business activities, such as your accounting processes, you free up time to focus on why you got into business in the first place.

“What is this accrual accounting thing I hear so much about? Am I doing it?”

Knowing the specific ins and outs of accounting can be a confusing, daunting task. What it comes to what method of accounting you are using, the water may get even muddier. Maybe you’ve heard of cash based accounting and accrual accounting, but you really have no idea where to begin. We’ve written multiple blogs on how to tell the difference and how to select what fits your business and set up your books. Check them out!

“Taxes terrify me. Where do I even begin?”

Taxes are a complex issue, and questions regarding this topic are common. Whether you want to know more about R&D tax credits, employer vehicles and mileage, how to track your taxes or even all those pesky (yet necessary) forms, we’ve got you covered. Check out our tax archive for answers to all your most pressing questions. If you can’t find the answer, let us know.

Remember, although we numbers nerds really like our financial lingo, we promise to answer your questions in a way you will understand, not just a bunch of accountant talk. After all, we want to see your business succeed!

Setting up for Success: Part 2

Welcome to our “Setting up for Success: Part 2” blog post. Part one focused on selecting a basis for your accounting and determining what information you need to track in your business.

Now that you understand what you need to track, how do you track this important information?

You can start by developing your chart of accounts. We know what you’re thinking: “develop my what?!”

Your chart of accounts is a listing of accounts that are needed to prepare financial statements and reports. A typical structure looks like this:

1000-1999 Assets

            2000-2999 Liabilities 

            3000-3999 Equity

            4000-4999 Sales

            5000-5999 Cost of Goods Sold (COGS)

            6000-6999 Operating Expenses (General and Administrative)

            7000-7999 Other Income and Expense

            8000-8999 Income Tax Expense

Account numbered 1000-3999 are used in preparing the balance sheet, while numbers 4000-8999 are used in preparing the income statement, which focuses on profit and loss. Of course, the number of individual accounts within each category will depend on the specific needs of your business.

A good rule to keep practice is to try to use the least number of accounts to attain the financial information you need, and structure it for growth.

What do we mean by growth? Let’s take a closer look at the assets section:

1000 Petty Cash

            1005 Checking

            1010 Savings

            1100 Accounts Receivable

            1200 Inventory

            1300 Prepaid Expenses

            1400 Fixed Assets

            1450 Accumulated Depreciation

You probably noticed the account numbers aren’t in sequential order. This allows for room for growth in your business.

You can also use the chart of accounts to track different jobs, departments, segments, etc. For example, maybe your business has locations across the Midwest in Fargo, Minneapolis and Sioux Falls. You want to be able to see how profitable you are at each location. You can track each location by assigning a division number, such as 01-Fargo, 02-Minneapolis, 03-Sioux Falls, and then attaching each division number to each of the accounts, like this:

            4000-01 Sales

            4000-02 Sales

            4000-03 Sales

            5000-01 COGS

            5000-02 COGS

            5000-03 COGS

Now that you know what information you need and how to track it, you can select an accounting system to help you track and keep information in order.

There are two options for tracking your information: manually or electronically (think desktop or cloud based). While there is no right or wrong way, computerized accounting is usually more efficient, which is leading to manual accounting becoming a dinosaur in today’s accounting world. Cloud based accounting also gives you the freedom to access your information anytime, anywhere. Who doesn’t love simplicity and accessibility?

It’s important, as always, to remember that each business is different, so accounting systems usually aren’t one size fits all. Doing your research and truly understanding your business’ needs can help you select a system that gives you the best possible results.

If all of this seems overwhelming, fear not. We have the resources and talent to help you design an accounting system that can set your business up for success.

Setting up for Success: Part 1

You’ve decided to start a new business – how exciting! There are many important things to consider when getting everything set up, such as your human resources policies (your employees matter!) and software and solutions (you want everything organized and running smoothly). Another important component you need to consider is your accounting – after all, these numbers lay the foundation for your business and essentially tell your story.

Accounting is an important part of your business, and getting it right the first time is crucial. So where do you even begin?

First, it’s important to understand your business and industry. This understanding can help you answer some important questions for designing your accounting system. Some of the questions that may come up include:

  • “What basis of accounting should I be using?”
  • “What information should I be tracking in order to make informed decisions?”
  • “I know what I want to track, but how do I track it?”

Let’s start with the first question: selecting your basis of accounting. Your basis of accounting is essentially a framework used to record your transactions. There are a few different types to choose from, with the following being the most common.

  • U.S. GAAP (United States Generally Accepted Accounting Principles) – Try saying that one ten times fast. This is an accrual based framework in which revenues and expenses are recorded when they are earned and incurred, respectively. This is the most commonly recommended type.
  • Cash Basis – In this framework, revenues and expenses are recorded when cash is received or paid, respectively. Cash basis presents two different methods of accounting: pure and modified. The difference comes in that under modified cash bases, some transactions follow U.S. GAAP. Check out this blog to learn more about cash versus accrual methods.
  • Income Tax Basis – This is a framework in which revenue and expense recording depends on tax regulations. This helps eliminate the need for converting from one basis of accounting to another for tax return purposes.
  • Regulatory – In this framework, a regulatory agency prescribes the best method.

Now that we’ve looked at the different basis types available, it’s time to determine what information you should be tracking. The key here is to capture all of your business transactions in the simplest, and most efficient, way possible. This includes both cash and noncash transactions.

Depending on your specific business or industry, you might need to consider tracking your transactions in greater detail. Here are some areas to consider tracking:

  • Should you be tracking direct and indirect costs related to construction or manufacturing contracts so you can see the profitability?
  • What sales tax jurisdictions do you need to track for sales tax reporting?
  • Do you need to track certain items for tax return purposes?
  • If you do business in multiple states, should you be tracking transactions by state for tax purposes?
  • Do you have different departments or divisions that you need to track in order to view profitability?

Once you decide what information you should be tracking, you can select an accounting solution, and start designing your accounting system.

Stay tuned for the second part of this blog, where we go in depth about how you track your information. Although we’ve shared similar posts about these topics in the past, we think a refresh and reminder is important. If you need help in the meantime, just ask!

Meet the Team: Stephanie Berggren

StephWhat is my role? My role is to help business owners by sharing and teaching what I love – accounting. Owners can focus on the fun stuff, like making their business grow, while my team and I can provide the accounting skills and knowledge to help them make smart growth decisions. My team and I can help them interpret the story the numbers are telling so they can have a better understanding of where their business is and where it’s going.

Why are numbers important for business?  Numbers are the story of your business. They tell the owner important statistics that, when understood and applied correctly, can help the business owner make informed decisions. Numbers tell the business owner what works and what doesn’t.

Why do I want you to succeed? When you succeed, we all succeed. I love the feeling of seeing businesses I worked with become successful. It develops a sense of pride in what I’ve accomplished, but also makes me excited to see where your business will go next!

#ILoveSmallBiz – Small businesses truly make the world go round. From job opportunities to innovative ideas, small businesses provide success and growth opportunities for our communities, which is a win-win for everyone.