Starting your own business is kind of like rolling a snowball down a hill. Small business bookkeeping helps that feeling.
It always starts out small. But as gravity takes over and the ball rolls down the hill, it gathers momentum and with that momentum is gains in size. The next thing you know, that runaway snowball is running you over.
Small business bookkeeping is simply necessary. Small businesses need a way to control that potential avalanche.
Believe me, I completely understand. But with some simple, easy to follow steps, you can avoid these potential disasters I so commonly see with clients. Here are the top 3 mistakes I see small business owners making with their finances.
1) No tracking system for income and expenses. Of course this seems obvious, but if there is no system in place for the tracking of income and expenses, then you won’t accurately understand how your business is actually functioning.
Consider for a moment how easy this one is to miss. When your business is just starting out and you’re the only one involved, keeping track of expenses could be as simple as noting them when they come through on your bank statement. Oftentimes business owners don’t even need to check the bank statements or go into their online banking. There are so few expenses coming out, it all stays in their head.
Growing businesses however, have many needs. They need to add new employees, new team members and periodically hire independent subcontractors. You do things like, add credit cards in order to expand your volume. Sometimes those credit cards are for the employees to track things like gas and inventory which makes life easier. However, if you aren’t looking at it every day it becomes so easy to forget about, especially when the actual expense is being created by someone else.
This is exactly why you need these tracking systems in place. Revenue increases invariably leads to increases in business expenses. Yet it is shocking to see how many people never upgrade their tracking methods.
After talking to as many people as I have, I understand. As a business owner, you are so focused on doing what you love and getting it going. We all just kind of, “go through the motions,” and do whatever it takes to make the passion pay the bills.
Oftentimes, you don’t even notice when your business has started moving in a direction that you can no longer keep track of mentally. Without a system, you’re simply unprepared for what your business is becoming. If we’re being honest, you didn’t properly plan for success. This is why small business bookkeeping is so important.
We all plan to prevent failure. Those ‘what if’ scenarios that we all fear we will hit and so we make different plans, alternative strategies, and ways of changing tactics to avoid the pitfall that is failure.
But we often forget that success can just as risky. Because if you start rolling and you don’t have a plan, it becomes easy to get overwhelmed.
What used to be simple for one person to handle, because you weren’t even sure the phone was going to ring next week, let alone the next day, has now grown into a high-demand business with a non-stop book of new business that needs your attention. It is difficult to make strategic plans for managing your growth, let alone make the time to implement those plans efficiently.
Trust me, I’ve seen it. I completely relate.
But here is the unassailable truth: If you don’t make a plan for your success as well as the potential of failure then the anxiety of a disorganized business will consume you. You need to keep a watchful eye on what your income is and what your expenses are, so that you can track your cost of doing business, your profits, and everything else.
Bookkeeping is the process of tracking all of your expenses and all of your revenue in one place.
Most businesses operate on a cash basis. This is the basics of bookkeeping that most of us grew up with. This is your basic, “money in, money out” concept. And because it seems so simple and easy to track, it is often times that very simplicity that makes it easy to overlook and such a slippery slope to fall down for business owners.
I have many clients who begin by calling me and saying, “I thought I made so much money last month, but the account is so low I can’t even pay myself this month”. This leads us into the second pitfall to avoid.
2) Failing to create a budget. This goes hand-in-hand with number one. If you aren’t keeping track of your income and expenses, then its impossible to create a budget.
As a business owner, you are responsible for your numbers. As a responsible business owner, you simply must know where your revenue is coming from and how it is being spent.
That’s the purpose of a budget. Budgets are a way to keep yourself disciplined in your spending. Flying by the seat of your pants with your spending is stressful, irresponsible, and no way to effectively run a business. You cannot have a successful business without a budget.
Oftentimes, those same individuals that like to “fly by the seat of their pants” as mentioned above, will sit down with me, (after we’ve set up the books- more on that later) and we will outline a budget. This gives those clients a basis to keep themselves on point and continuing to grow their business properly.
That budget always includes the expenses you can count on, as well as those you may not necessarily know you will need, or may not need every month. These are the expenses that will continually slip past the business owner. These are the expenses that always go missing on the owners mental record keeping. It is these things that are consuming your profits and potentially bankrupting your business.
It’s the miscellaneous dues and subscriptions, or software expenses, or car and vehicle expenses, and let us not forget the business lunches that eat away at the budget until there is no profit left and you are scratching your head wondering where all the money went. Small business bookkeeping is the easiest way to avoid this pitfall.
3) Not planning for tax obligations. Are you starting to see how these three things all go hand-in-hand? If you don’t track your income and expenses, and if you don’t know your profit, then it is impossible to plan for your tax obligations.
We all know that the IRS is stern, uncompromising, and waits for no man. I hate to think about the clients who have come to me only AFTER their accountant has told them they are missing the necessary information to prepare their taxes. It is an absolute nightmare that oftentimes is a huge expense for the business owner.
You need to know things like: business taxes, income taxes, and financial statements. Additionally, you need to know any and everything else that goes along with small business accounting and small business bookkeeping.
It can certainly be exhausting. But if you plan correctly, we can get through it as painlessly as possible.
Your accountant needs clean and organized financial reports in order to create a good tax return. These reports are your balance sheet, your profit and loss reports, and any assets and liabilities that you may have.
If all you have are a shoebox full of receipts and twelve months of bank statements, your accountant will simple shake her head, put you at the bottom of their list, and/or charge you triple to go through it all.
Please, avoid this nightmare at all costs by working with a competent bookkeeper right away. It’s oftentimes the first hire and not the last. These professionals are that important.
Small business bookkeeping is what we do at Papillon House Bookkeeping. And we humbly do it very well.
We offer full bookkeeping services at a fraction of the cost of an in-house employee. Because we work remotely from home, there is a significantly less increase to your overhead. And, with no hourly costs for things like payroll, and taxes, it’s breathtakingly simple to actually implement the new hire. It adds almost zero work to your day and instead takes all the headache and guess work out of the financial portion of running the company.
At Papillon House we start with Quickbooks Online. Quickbooks Online is a cloud based accounting software designed for basic bookkeeping. It can also accommodate more advanced accounting needs if necessary. It connects all your bank and credit cards in one place so that you can have accurate financial information in real time.
For those that need inventory tracking, Quickbooks Online also allows all the products and services your company uses and keeps in inventory to be input into the system for easy invoicing and records keeping. Like all software it has it’s shortcomings, but accounting is not one of them. At Papillon House, we work hard to stay up to date on the updates of the software as well as experts in the field of Quickbooks and accounting concepts in general. We do things, “by the books.”
If you need help navigating these financial pitfalls, message me to see how I can relieve this stress for you! It will be one of the easiest calls you make. We care about your success and you and we show it in our approach and customer service.
Morgan is the Director at Papillon House Bookkeeping, a Tampa, Florida-based firm that specializes in bookkeeping services for law offices, architects, and the construction industry. With over three years of experience in her current role, she aids her clients in meticulously organizing their financials. Morgan's dedication and expertise extend beyond the realm of accounting, allowing her to provide comprehensive financial management solutions. She also engages with her audience through live discussions on the Papillon House Bookkeeping Facebook group page.