After starting three small businesses, I’ve learned firsthand the headaches that accounting causes for most small business owners. It’s one of those back-office tasks that never cross your mind when you decide to run your own business, and yet it sucks up your day and makes running a successful business that much harder.
But there’s hope, and it starts with getting organized. Here are 5 tips I’ve learned by helping business owners trying to tackle their accounting:
- Keep it separate. That new backpack for your kids isn’t a business expense, but your business credit card was handy so you used it. Sure, you can pay back your business for a personal expenditure, or the other way around, but if you’re going to do it right you actually have to record an accounting transaction. Things get complicated fast, and you don’t need that headache. By keeping separate bank and credit card accounts for business and personal, you’ll save yourself hours of work and make it easy to keep track of deductible expenses in one place. Some applications can automatically handle the behind-the-scenes accounting for crossover expenses, but even so, we recommend handling business and personal finances as independently as possible.
- Call in a pro. Since the days of the abacus, accountants have been trusted and respected allies to small business owners everywhere. Their intimate knowledge of the profession as well as tax laws in their jurisdiction will save you money almost every time. I know how tempting it can be to save a buck and do it yourself, but it’s almost never more cost-efficient in the end. An accountant will almost always find more deductions and keep you penalty-free. On that note, the cleaner your records, the fewer billable hours you’ll have to pay, so make sure you’re organized year-round. But when things get technical or taxes are due, save yourself the money, time and headaches and call in a trusted professional.
- Pencil it in. Actually, use a pen. A permanent marker even. Set aside about 15 minutes every week — that’s the equivalent of just one Facebook visit every seven days — to organize your finances, and don’t let other things take priority during this time. You’ll have more insights into your business, be able to make more informed financial decisions and have everything organized when tax time approaches. Something always feels more pressing than your finances. But when you find the time every week, you’ll feel your stress levels — now and at year-end — fall fast.
- Consider your people. When you’re looking for insights into your businesses spending, don’t forget to properly track what is likely one of your biggest expenses: labor. Whether you’re paying a full staff or you’re the only one on the payroll, make sure you’re tracking the costs of wages, benefits, overtime and any other costs associated with labor. By tracking your spending on labor, perks and benefits, you may find you have more money to incentivize your employees — or that you’re outspending your budget. Either way, doing the math now can help you make better decisions later.
- Finally, don’t forget to get paid. This one seems pretty obvious, but you would be shocked at how many small business owners don’t properly track invoices and customer payments. If you’re not keeping proper records that you can make sense of at a glance, it could be months before you realize you have outstanding invoices. You could be collecting payments late, or missing some altogether. Make sure you’re properly tracking all payments due and recording when each invoice is paid, how long customers generally take to pay, and which customers you’ve had difficulties collecting payments from in the past.
Kirk Simpson is the co-founder and CEO of Wave Accounting. Wave is Kirk’s third start up. In between entrepreneurial ventures, he worked with some of Canada’s biggest media and corporate brands, primarily in strategic alliances, business development, sales and marketing.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
Photo By: Sami