Accounting for the New Entrepreneur Dummy:
Now that you have your business idea you will need to begin incurring expenses and hopefully generating revenues. Below are TheBizGeeks Top Ten guidelines to help you begin to “account” for these expenses and revenues.
1. Chart of Accounts
techno-geeks the chart of accounts is equivalent to file folders on your computer. Just like when you get a new computer and you set up folders to hold your files, in accounting you need to set up accounts to hold your transactions. You will have many more expense categories than revenue categories. Talk with your partners and employees and collect from them the types of expenses you will have…and types of revenues anticipated. All should be contained in your budget and pro-forma projections. Try to distinguish between expenses related to running the business and those related to fulfilling orders. For example, Office Supplies. If you ship goods to fulfill your orders, you will have expenses related to this fulfillment (boxes, tape, shipping, etc). You will also have office supplies expenses related to running the business. It is preferred to have these separated so you can determine what the true cost of fulfillment of orders is.
2. Bank Reconciliations
Select a bank that offers electronic download of transaction data as reflected by the bank and compare with your transaction data as reflected by your books. If they cannot offer this, select another bank that can. Bank reconciliation should be a painless, easy process provided you have electronic access to bank data without manual entry. Spend four hours figuring this out. It will save you forty hours every month.
We are not proponents of auto-payments. Vendors love them. You should hate them. Yes, they save you some time, but you are better served by consciously making the decision to pay your vendors. Set up an inbox dedicated only for invoices due. Make sure the invoice has been initialed by the employee incurring and approving the charge. Set up once or twice per month to pay your invoices.
Outsource your payroll to a fully-vetted, reputable company. We know of a couple national brands that do a great job. Be careful to whom you outsource this. If the provider decides to not make your payroll tax deposits, you are personally on the hook. Oh, did I mention…don’t EVER mess around with employee payroll taxes. You should elect to not make payroll or close up shop before you withhold taxes from an employee and not make the deposit.
If your business calls for some extension of credit, be specific in your invoice about your preferred or required method of payment and clearly define timeliness of payment. If the vendor has not paid by the date payment is due, follow up the next day. You need to begin “training” your customers on your receivable collection process and culture.
Gone are the days when we print, stamp and post invoices. Make sure your customers are good with electronic acceptance of invoices. Send them out by email. And follow up.
7. Accounting Systems
Pick an accounting program that is available as an ASP/SAS. Only one person (for a small business) should have access to input data. We like those systems that integrate well with payroll.
8. Compilation, Review or Audit
Your investors will determine which of these are required and expected. If you don’t know the difference between the three, read your Accounting for Idiots text book from business school or ask your accountant or search Google!
9. Accounting Reports
Accurate, timely and meaningful. These are the three standards to achieve. Weekly is great for a new business and monthly is a minimum. Actual vs. projected; actual vs. budgeted. Publish your reports so they are available to those you select to access.
10. Leases, Prepaids (Insurance), Inventory, Cost-of-Goods; Pensions, Equipment
These are a bit trickier, but the same logic applies. We will cover each separately through a webcast.
- Enhance your analysis of business plans, financial projections and SWOT models.
- How reasonable are your revenue projections? Most businesses fail to meet their revenue projections presented in their business plan. The mantra for real estate is location, location, location…for business it is revenues, revenues, and more revenues.
- Finding good companies in which to invest and ensuring they are successful is a huge challenge of professional investors.