business advice Archives - TAB Corporate

6 Accounting Errors Every Entrepreneur Should Avoid

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Aside from those who specialize in accounting, let’s assume you didn’t go into business because of a love of ledgers and spreadsheets. Nevertheless, few elements of operating a business are as crucial to long-term success as maintaining accurate books and staying on top of financial matters. No matter how great your new business idea or model may be, a string of accounting errors can result in severe financial deficits, leading to employee lay-offs or, in a worst-case scenario, being audited and paying significant fines to the IRS.

So if the prospect of eliminating accounting errors from your business is a top priority, here are frequent (and often overlooked) mistakes you should avoid:

1. Not grasping the fundamentals. Some business owners, caught up in developing and promoting a great new product or service, fail to clearly understand the difference between cash flow and profit. As any accountant will tell you, they are not the same things.

Cash flow refers to the stream of money coming in and out of a company as a result of sales, investment, financial activities and related operations. Profit is what a business accrues from sales revenue after all expenses have been deducted.

Closely scrutinizing your financial statements every month is the best way to stay on the right side of this fundamental business proposition.

2. Trying to do everything yourself. Sooner or later, most business owners “get” that they’re not equipped to do everything themselves—especially attempting to venture into the complex world of accounting. Invoicing, payroll processing, accounts receivable, etc., are best left to an expert. Don’t attempt DIY accounting or you may live to regret it (see tip #6).

3. Mingling business and personal finances. In the rush of daily life, it’s easy to get your business and personal finances tangled up. Your business will likely suffer if money meant to fund operations is spent on the purchase of a new tennis racquet (and left unrecorded).

Also, as veteran entrepreneur John Rampton points out, the IRS doesn’t look kindly on such sloppy record keeping: “ … while the IRS can understand that a certain number of meals throughout a month might be business-related, those tickets to a concert or video games on the business credit card clearly do not.”

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4. Failing to record cash expenses. Speaking of expenses, how often do you make a point of recording cash expenditures? Unlike payments made by check, debit or credit cards, cash laid out for business expenses can easily get lost in the shuffle. Make a habit to automatically record cash expenses as soon as they’re made.

5. Neglecting to reconcile business accounts. It’s essential that the balance listed in your financial accounts is accurate and up-to-date, and that it matches the balance recorded in your bank account. If days, weeks or months go by, and you fall behind on reconciling customer payments, credit card statements, sales tax, business checking statements, receivables listings, etc., your books will be a real mess.

6. Being too shortsighted to hire an accounting professional. So what if your wife’s nephew took an accounting class in college? That doesn’t make him qualified to handle your books, no matter how much money you save hiring him rather than an accounting professional. Hiring a CPA or other expert ensures you’ve got a person on-board with a thorough understanding of tax laws, invoicing, payroll taxes and so on.

Just as important, is maintaining regular and clear-cut communications with your accountant, so he or she knows what’s going on at all times. This applies both to keeping accurate day-to-day records, as well as forecasting the future of your business. David Wechsler, Vice President of The Alternative Board Denver West advises business owners to “Use your financial professional wisely. You are not paying someone north of $75 per hour to do data entry; you are paying them for guidance, compliance, and peace of mind that your financial house is in order.

Take accounting seriously. You owe it to the long-term success of your business.

 

5 Advisors Every Startup Should Have in its Circle

5 Advisors Every Startup Should Have in its CircleStarting your own business can be the most frightening, yet rewarding, challenge you’ll face in your professional life. While the urge to be your own boss may have driven you to take the entrepreneurial plunge, surrounding yourself with the best team is the key to ensuring your startup will beat the odds and provide you with long-term success.

We asked Dave Halpern (an executive business coach from The Alternative Board with nearly a half century of experience) to choose the five key players a startup should have in its circle. Learn from Dave’s no-nonsense business coaching tips (in quotes below) as he explains why each of the following professionals are essential members of your extended team:

1. Attorney“Dot your i’s and cross your t’s – better yet, let a lawyer make sure all contracts are legal and binding.”

Takeaway:

A business may find itself in need of one or more types of legal representation over time. Contract writing, incorporation, licensing and intellectual property are issues that are best handled by professionals, and they can crop up at any time.

Hire an experienced business attorney for your startup. If they’re professional and trustworthy, they’ll immediately tell you when any issues arise that they’re not qualified to handle and should be able to refer you to someone who can.

 

2. CPA“You never want to take shortcuts when it comes to keeping your books and whether you’re accountable to venture capitalists, a future buyer or even tax collectors, a good CPA will CYA!”

Takeaway:

Save yourself trouble ahead of time – get an accountant to do the accounting. Though it can be tempting to do the books yourself (it’s just addition and subtraction, right?), accounting is a college degree of study for a reason – it’s complicated.

Why is it complicated? Ask the taxman! The tax burdens placed on businesses extend beyond just the tax bills themselves. The paperwork and procedures that companies are expected to keep for audits are onerous, and a good accountant will have an intimate knowledge of the processes involved.

 

3. IT Company“Since businesses are increasingly dependent on state-of-the-art and reliable technology, you’ll want a team (or at least a tech support rep) on call for any emergencies in your infrastructure.”

Takeaway:

Your operations are likely highly reliant on technology and even a simple glitch like your mail server going down can grind daily productivity to a halt. In-house run IT systems will require expertise for regular maintenance. Whether your “IT guy” is full-time or just on call, Murphy’s law dictates that you’ll inevitably come to need their expertise in a big way at some point.

Conversely, once your business expands, IT systems can also be outsourced to cloud service providers who can host the necessary hardware in their own secure and locked-down data storage locations.

 

4. Sales Expert“You’ll need this specialist to grow the business and either instruct your sales staff or, in smaller businesses, be the sales staff.”

Takeaway:

Wouldn’t it be nice if everyone could sell? Unfortunately it’s not that easy. Worrying about your company’s ability to maintain a steady stream of orders and income might keep you awake at night if you don’t have a proven leader in your sales department. Selling is a skill, and you’ll need someone on staff who specifically performs this skill – and well.

If you have a full sales staff, your sales expert can lead the team. If, however, you’re a small enough startup, your sales expert might be your sales staff. Still, this pro can help you grow your business to the point where additional salespeople are required.

 

5. Marketing Organization“A professional marketing firm will ensure your company is represented well publicly and that the word gets out in the most expedient fashion.”

Takeaway:

Branding, advertising and marketing strategy can make or break any company trying to enter the marketplace. You can offer the most brilliant product or service, but unless people know about it, your business is dead in the water.

If you’ve got a knack for writing, a current list of media contacts and time to keep up with rapidly changing internet trends — skills like social media management, content marketing, blogging and PR can be learned. Adding a marketing expert to your circle, however, will free you up to focus on the things that you actually enjoy doing for your business. Whether you bring one on full-time or only for sporadic campaigns, a marketing organization can pay for itself by providing your company with valuable public exposure.

In addition to these five key players, many business owners would add a sixth must-have person: a small business coach. Do you have one? Check out a few case studies of business owners who have increased profits and improved work-life balance by becoming members of The Alternative Board.

Can you think of any professionals who are essential to a startup business that we may have overlooked? Let us know in the comment section below.