I haven’t written too many articles for Work It, Mom that have been directly related to my actual work, other than maybe this one about some of the perks of not being an entrepreneur. A lot of the members of the WIM community do have their own businesses, though – or want to – and some of their recent discussions about dealing with their financial matters prompted me to think I might have some useful suggestions for them, since that is what I do for a living, after all.
My article “The Numbers Game,” was recently published on the site, and I’m re-printing it here. It may end up being one of my least-read blog posts ever, but who knows?
The numbers game
Things to consider in finding an accountant for your business
From some things I’ve read here at Work It, Mom!, I get the impression that accounting is a necessary evil to many entrepreneurs, and not an aspect of their business that they muster much enthusiasm for (unless that’s the service that their business provides, of course). Evil or not, it is indeed necessary, and finding a qualified accounting professional to handle it for you – or at least to advise you – is important from the beginning.
“Accounting” and “bookkeeping” are sometimes used synonymously, but they’re not exactly the same thing. Bookkeeping is the straightforward process of financial recordkeeping; accounting involves making sense of it all. Your accountant may be the one who handles your bookkeeping tasks, or she may review the records someone else maintains and use them in analyzing and reporting your business’ financial condition.
There are a couple of good places to start your search for an accountant. One is within your network, seeking recommendations from people you trust. Another obvious source is your tax accountant, if you have one, since a variety of taxes will be a fact of life for your business. However, like physicians, accountants often specialize, so it’s possible that your personal tax accountant may not be the best person for your general business accounting, but she probably can suggest some prospects.
The most basic business record document is a checkbook and check register. All the income your business takes in gets deposited into its own bank account, and business bills get paid from that account. That’s the simplest bookkeeping there is – other than “receipts in a shoebox,” and please don’t let that happen! – and if that’s all your business required, you probably wouldn’t need someone else to deal with it. But it probably won’t be, and that’s where your accountant comes in.
These are some of the things that your accountant should be able to do for your business:
- Work with you in developing the financial part of your business’ operating plan, and crafting that into a formal budget and financial projections, if necessary. This involves tasks such as identifying your likely sources of revenue and your anticipated operating expenses, and determining where start-up funding, if needed, may come from; are you investing in your business from savings, raising funds privately, taking on debt, or some combination?
- Establish your accounting system and chart of accounts. This may be based in Quickbooks, on spreadsheets, or in some other software package. This is necessary because your income and expenses need to be classified, and can’t just all be dumped into that bank account.
- Set up your receivables and payables. Your business’ income and expenses aren’t fully reflected by what happens in your bank account. You’ll usually earn revenue for what you do before you get paid for it, and be responsible for expenses incurred before you pay them. Your customers get billed, and your vendors bill you; that’s when the transaction goes into your records, for a more accurate picture of how your business is really doing financially. This is why having cash in the bank doesn’t necessarily mean your business is making money, and also why a business can keep going even in a cash-flow crunch – whether everything “looks good on paper” or not.
- Confirm that all of your financial activity gets recorded! The simplest way to achieve this is regular monthly reconciliation of your bank accounts – balancing the ol’ checkbook to your bank statements. Verifying that all of your customers have been billed and that you’ve got documentation for all expenses is also part of the process.
- Analyze your business’ financial condition at any time by producing reports from your accounting system (which may or may not include formal financial statements, depending on your needs), and be able to communicate the information to you.
- Monitor your tax situation and stay in compliance with regulations. If your business accountant and tax accountant aren’t the same person, it’s important that they be able to work together, because taxes will affect most aspects of your business. For example, one reason that proper expense classification matters is tax deductibility. (And taxes themselves are a deductible expense!) Your business’ organizational form – sole owner, partnership, corporation – affects how its income is taxed. You may have to collect and remit sales taxes. Employment and payroll taxes can get complicated, and must be properly withheld and paid timely, or things can get ugly. Even if you don’t have employees, you won’t escape the self-employment taxes.
Ideally, your accountant will be someone who has experience with your type of business, and who keeps his or her knowledge base current with continuing education, particularly in tax-related areas. You may need just periodic consultations and reviews with an accountant and/or tax advisor early on – but hopefully your business will grow. It’s easier to get systems in place sooner rather than later, and expand them as you need them.
The stereotypical accountant isn’t really known for strong people skills, but communication between the accountant and the business owner is critical, and both parties need to understand what’s going on. The accountant needs to have a grasp of what the business does so that he or she can relate that to the numbers in presenting the owner with the financial picture. The entrepreneur needs to understand what those numbers mean to her business. Both parties need to be honest, open and clear with one another.
Going into business on your own can be intimidating, but a trusted accountant will be part of your team – a real asset, if you’ll pardon the accounting pun – and you won’t be going it alone.
