As an independent bookkeeper, I have had insight into how many businesses run, and I have seen commonalities in what successful businesses do and I have seen commonalities in what businesses that struggle are doing or not doing.
If you have a new business or small business, these tips will help you avoid some common bookkeeping and financial pitfalls.
Have a plan in place
Most business owners know that you need a business plan to start a business, but even after you have established your presence in the market you need to continually update your plan with what your goals are and how you plan to reach them. Often businesses become complacent and do not have a plan of action which leads to loss of growth potential.
Hire an attorney to correctly set up your business
A common mistake I see is companies not hiring an attorney to help them properly set up the financial structure of the company. An attorney can assist with determining which tax structure (LLC, Corp, Sole Prop., etc.) makes the most sense for your type of business and file the proper paperwork on your behalf. You can change the structure of your business after you are in business, but it will save a lot of time, money, and headaches if you start with the best structure for your type of business.
If you will have partners in your business, talk to your attorney about creating all the legal agreements needed to potentially avoid future issues.
Keep personal money and business money separate.
As a new or small business owner, it may be tempting to have one account that you use for business and personal expenses. As a rule, this is never a good idea and can lead to confusion in managing your books. Tax season can be especially rough as there will be personal items that cannot be written off and if you get audited, you will have a sticky situation on your hands. Opening a business checking account as soon as you open your business will help you manage your finances more effectively.
Have a bookkeeper properly set up your accounting systems
Your financial health is vital to surviving as a business, so do not skimp on setting up your accounting systems and processes. Hire a professional bookkeeper/accountant to help you select the appropriate accounting software. Your bookkeeper can set up all the functions you will need to have clean tracking and reporting from the beginning. Some bookkeepers can also help you identify and understand the key financial reports to regularly review.
As tempting as it may be to use a spreadsheet program, such as Excel, to manage expenses, these types of programs will not give you all the functionality to effectively run your business.
Stay on top of your competitive landscape
Stay vigilant in watching market conditions, especially competitor pricing. Underpricing your product/service can lead to loss of potential revenue and overpricing may lead to loss of business.
As much as we would love to believe the adage of “Build it and they will come,” that is generally not the reality in business. Even if you are not able to afford to bring on a marketing person in the beginning, you still need to develop a plan on how to get your name out in the market. One simple (and relatively cheap) option is networking. As with all marketing, be sure you are properly targeting your audience – are you where your prospects will find you? It’s easy to get lost in the number of options that are out there, so be specific in what your needs are.
Also, networking is not just about leads. Good networking helps you build relationships that can assist you in your business and serve as peers that you can learn from.
Gather your team
Perhaps the biggest mistake of all is TRYING TO DO IT ALL ALONE. Launching and running a business is a big undertaking. Successful business owners have the confidence they need to take such a big step, but they also have the awareness to know where and when they need help. Even if you plan on running your business solo or with a lean team, there are plenty of independent contractors in law, accounting, marketing, and all functional areas that can assist you in building your business.
In addition to building a stable of contractors that you call on when needed, build a network of peer business owners and trusted partners that can support you in your business efforts.
Starting and running a business can be a challenge. Hopefully, these insights will help you achieve a higher level of financial help.