No successful marketer decides to start their own agency because they love accounting. Not even the most passionate digital marketers who love getting deep into the data, like I did when I started Adficient.
One of the most common problems we see from startup founders who are first moving away from DIY accounting is a wide range of “personal transactions” being made with the business accounts. This is known as “commingling your books” and is a huge no-no as well as one of the most common ways businesses find themselves on the barrel end of an IRS or state audit.
My colleague recently wrote about the importance of closing your business’s books at the end of your fiscal year. A few of you reached out to us after reading her post, asking for more about some of the financial statements that Melissa mentioned.
We’re happy you asked!
For a startup to survive and succeed, it needs to manage cash flow with utmost care and skill. Founders and business owners often find it challenging to maintain a steady handle on their burn rate, and this has become a common reason for many startup failures.
Even if you’ve reached profitability or raised a significant amount of capital, you can still fall short if you don’t manage to meet your overhead, payroll, and other operating expenses that keep your business afloat.
We recently explored what it means to have "financial confidence" or the knowledge and faith that your business is meeting its fiscal objectives, and the sense of certainty imparted by a robust and accessible set of bookkeeping data.
We learned that financial confidence has as much to with the facts of one’s business as it has to do with an executive’s feelings about the business—the two are woven together in a pretty tight ring. From there we know that you can’t manifest feelings or facts out of thin air, so how do you build confidence in your business’s finances?
You’re a startup CEO. You’re running your business fast and lean. Getting your company’s financials cleaned up and organized is on your to-do list, but so are a thousand other things. You’ll get around to it—just as soon as you secure the loan that will help you scale up.
I hate to break it to you, but as long as your financials are a mess, that funding is going to stay forever out of your reach. At Lighter Capital, we field a lot of loan applications, and the number one reason we reject potential borrowers is that the entrepreneur is unable to produce financials. And we’re not the only ones who feel this way.
Over the course of your life, you’ve probably known someone who holds on to all their receipts, no matter how old or trivial those receipts may seem. Maybe it was your grandfather and his shoebox. Maybe it’s your mother and her filing cabinet. Maybe it’s you and that overflowing desk drawer.
While the practice of saving receipts can verge on obsession, startups have good reasons to retain and organize those little scraps of paper with care. Receipts help your business keep track of expenses, so you can provide proof of purchase for any future exchanges or claims under warranty, understand what your organization is spending too much money on, reimburse employees when necessary, and, of course, deduct everything you possibly can on your taxes.
Ask yourself: How confident are you in your company’s financial position? How much knowledge do you have about the transactions and activity that flow in and out of your books? Not to mention, how much faith do you have in the accuracy of your financial picture?
When you’re a small business owner, every dollar counts. If you’re new to business, then chances are your revenue stream isn’t predictable yet. You could be making $10,000 one month and $1,000 the next. Often, the line between failure and success is razor-thin, and you need to maximize every possible bit of revenue to stay afloat.
The last few weeks of every year fly by, but before you get swept away by the hustle of planning for 2017, set time aside to bring the current year to a close. I’m not talking about hosting an office holiday party to celebrate your company’s achievements, holding annual reviews to appraise individual and overall business growth, or dishing out employee bonuses. You should definitely consider doing those things!
Whatever else you do, just remember that your most important end-of-year financial task is closing your books.