Money is October’s theme at NACET, and our team knows the fears, misconceptions and taboos surrounding this topic. In fact, all of us have had our own experiences, as well as those with clients, and witnessed how stressful managing money matters can be. Even as we plan NACET’s training calendar each year, we are careful with how we present and discuss financial topics – we don’t want to intimidate or overwhelm. But, money is a key tool for growing your business, and owners need systems and processes in place so that their businesses can ultimately run without them. We thought we would share some of our team’s perspectives.
Business without systems is chaos; and chaos will grind your business into the ground. Way Yuhl, analyst for the Small Business Development Center, explains that his approach to starting and operating his various service, retail and manufacturing businesses was to always set up the systems by focusing on the end goal: to have the business operate smoothly without his direct involvement.
In the beginning, systems don’t have to be complicated flowcharts or special software (except for things like accounting and taxes), he explains. A lot of systems can just be checklists, like the opening and closing procedures, step by step lists for manufacturing, or scripts for employees when they interact with customers. As your business grows, things will get more complicated, but at least you’ll have a starting point for growth. The key is to start documenting what you do, so you can create systems from the beginning.
There are big, overarching systems, some of which we might recommend professional help to set up and maintain, such as accounting. Others might involve professional advice and assistance, like marketing and social media, and others only require you and your employees, like manufacturing or sales. Your systems have to be flexible because they are going to change as you and the business become more efficient, grow and change functions.
Trish Rensink, NACET’s incubator program and operations director, says that years ago in previous business consulting work, when she began working with new clients, their first task was always to complete a thorough financial assessment and cash flow document. Fixing systems was always a top priority in improving business performance. The kinds of things she saw that needed repair were scary, and far too common.
One client had more than 200 expense accounts listed. Rensink would sometimes find only one entry in an expense account because the client set up a new account when he or she wasn’t sure where to put an expense. She also saw several accounts named with people’s first names. When asked, the client explained these expenses were actually child support. This same client often reached into the safe to take out a few hundred dollars cash. This led to a frank discussion explaining that while it was his or her business, he or she couldn’t just take from the till for pocket change. Comingling business and personal funds always creates more difficulty (and serious risk with the IRS) than setting up appropriate systems.
The toughest problem involved a client who entered payments received, but revenues decreased with each entry. It took hours to determine that the inventory items were not set up correctly; it took several more hours to make the corrections and record payments properly.
To get finances organized, it is most important to have a system, understand how to use it, and understand the information it provides, so that you can make better informed business decisions. Nearly every small business will need to cultivate a relationship with a CPA in the long run. We recommend at least getting CPA help with the initial accounting category set up and at tax time.
Bret Carpenter, director of the Small Business Development Center, suggests that the first action to take in setting up financial management systems is establishing a separate bank account for your business. Next, businesses need to have a good basic accounting system, and set it up with the correct starting balance in the business bank account. This also means that the initial setup of the accounting system has appropriate categories for both revenues and expenses; for example, having categories that distinguish between product revenue and service revenue or a rent expense versus an inventory expense.
Ask questions about the basics of accounting. Don’t be afraid. Revenue, expenses, cash flow, profit, loss, cost of goods and payroll should all be terms that an owner is comfortable with and understands.
According to Flagstaff CPA LuAnn McCormick Roberts, “If a business does only one thing to set itself on the right path financially, it must be to get a bookkeeping system. Something that will show them their profitability, the difference between income and expenses.”
Use a real bookkeeping system; here are a few we would recommend looking at:
Quickbooks Desktop
- full-featured accounting system
- most common software used in small business
- $199 for software
- only accessible on the host computer or network
Quickbooks online
http://quickbooks.intuit.com/smallbusiness/
- cloud-based Quickbooks (not much like the desktop version)
- full-featured for small business
- several levels of service from $10 per month to $90 per month
Wave Accounting App
- free basic accounting
- paid add-ons like payroll
Xero Accounting
- up & coming online accounting system
- full-featured for small business
- priced from $9 to $70 per month depending on business needs
We like this resource on the terminology and structure of accounting – http://www.accountingcoach.com/. Visit nacet.org to see this month’s calendar, and how we can help you better understand business and money, or better yet, visit us and let us help. FBN
By Annette Zinky, Way Yuhl, Trish Rensink, Bret Carpenter and Anne Marie Mackler