Yes, you need an accountant. However, its not like car insurance, where many people buy it just to be legal to drive hoping they never have to make a claim. No, the services of an accountant will effect your business in many real ways. So one should be selective when hiring and obtaining the services of a certified public accountant. An accountant can help you structure your business, and prepare you for self employment taxes and estimated taxes so that at the end of the year, you aren't suddenly in denial when Uncle Sam comes a calling. But a CPA can do more than just prepare your estimated taxes. Here are a few services that a quality CPA can provide. And yes, it is important to hire a quality CPA. I would discourage the entrepreneur from hiring a friend to do your accounting, when they boast of taking accounting classes at the local community college. Or trying to do the work yourself, hoping to save a little money. The mistakes you make can cost far more than what you pay a CPA. So, here are some key issues that a quality CPA can provide.
For starters, a good CPA can help you write a business plan. They can also help you produce data that along with your business plan, you can go to the bank and obtain loan. A CPA can help you set up your business structure, and tell you if and when you need to incorporate. A CPA can help you find the right software for your business, which will help you with record keeping and billing statements. You need software that is inline with your business's needs. Also, a good CPA will help you set up said software and get you started using the program in a consistant way. Sometimes you should pay with cash, and sometimes you should borrow money for a purchase. A CPA you have a good relationship with can help you know when each is appropriate. A good CPA will help you set up a tax deferred retirement plan for you, your family, and your employees if you so desire. If you want to transfer your business to your spouse or your children, a CPA can help you with that. They can advise you when you may need an attorney, or a financial consultant, and often make suggestions for you based on your specific needs. And finally, a quality CPA that you have a professional but close relationship with can help you see which aspects of your business are doing better than others, and thereby help you focus on areas that will increase your business's growth, and trim back or eliminate those areas of your business that are dragging and non cost effective.
So how do you find the right CPA? Well if you are a small business, try looking for a small accounting firm. Bigger is not always better. So if your business has 10 or less employees, try finding an accounting firm that has 10 or less employees. Look for a CPA that has knowledge in your specific business field. Make sure your CPA is proficient with technology. Computers play such a huge role in todays economy... so your father's accountant may not be your best bet in today's market. (your accountant should be able to text you atleast). You should not only meet with your CPA regularly (quarterly) at their office, but have them come to your place of business too. There may be simple suggestions they can make just by seeing how you operate.
Hiring the right accountant could be one of the most important decisions during your entrepreneurial experience. Many people may make the mistake of thinking "well, an accountant doesn't make me money... So I will spend more money on a new fangled espresso machine, and less on a quality accountant". This is a mistake. Money management is more important than total cash income, because even if you have a small budget, if you manage your money wisely, you will 'feel richer' than if you have a large cash income, but make bad decisions, and you will feel like you are always in debt. A quality CPA can help you trim here, and spend there, make wise purchases, and avoid bad ones, and ultimately increase the amount of black ink in your check book, and cash in your pocket.
Tuesday, June 22, 2010
Monday, June 7, 2010
Change Is Good, Unless Its Your Entrepreneurial Financial Accounting Practices
With technology morphing faster than a tadpole in warm spring puddle, its critical that a business change with the times and what the market dictates. Whether it is the automobile industry trying to stay out in front with leading technological and saftey improvements, and the competitors racing to keep up, or the fast food wars and which franchise can deliver the biggest meal for the cheapest price from a drive thru window, change is necessary to stay ahead of the competition. However, there is one aspect of small business that change can cause adverse effects for an entrepreneur trying to move ahead in today's economy; Financial Accounting.
In the early 2000s, several large corporations fell due to accounting scandals. To blame was deviation from the norm, and trying to be 'creative' in accounting practices. Since then the US government has put in place regulations that hold coroporations to a closer standard, but ultimately, its the business owner who must adhere to this rule of standard and unchanging accounting.
It goes without saying how important it is for a small business owner to utilize the services of a qualified accounting. By doing so, the entrepreneur can reduce the risk of waste, excessive taxes, and fraud among other things. For the sake of this blog post, lets take it for granted that all business owners use the services of a financial accountant.
Accounting rules often change over time to reflect changing business models and transactions. But, financial accounting as a business tool should remain stable. Accounting should evolve only after explicit consideration is given to why business transactions should be recorded and reported differently.
Rather than an attempt to school the reader in the details of financial accounting (something we say when we ourselves aren't knowledgable in a certain field of expertise), I will touch on a few of the most basic functions of accounting. It should be clear why these are better static, than in flux.
The General Ledger: This is the main accounting record of a business which uses double entry book keeping. Usually, a general ledger is divided into two sections. The left is for debit transactions, and the right is for credit transactions. Think of the center as the axis of a scale. entries should in a sense, balance. Some of the entries are for current assets, fixed assets, libilities, revenues, gains, etc. The ledger should be kept in balance, ideally. And a good accountant need not be creative to list entries, however, they can offer advice on how to keep the ledger more balanced.
Financial Statements: Sometimes called a financial report, this is a formal record of the financial activities of a business. There are three basic elements of a financial statement. 1) Balance sheet - usually posted at the end of a month, quarter, and/or yearly, this shows the financial condition of a company. A financial statement lists all the companies assets on one side, and libilities on the other. 2) Income Statements, sometimes referred to as a profit and loss statement, or P&L, highlights all activities within a company to make a profit (sales, cost of goods, and overhead, including salaries, rent, utilities, etc.) 3) A Statement of Cashflow shows all cash that flows in and out of your bank account. Not limited to cash associated with buying goods, and selling goods, cash flow statements can include borrowed money to repay loans. This activity isn't part of an income statement, but instead is listed on a cash flow statement.
Improving Business Decisions: We all learn from our mistakes. Thats a part of biological evolution, and financial evolution. A good accountant can point out areas that need adjustment, or improvement, but ultimately its up to the business owner to make decisions that will enhance the business, and stimulate growth of their business. Ask for your accountants advice, but don't be afraid to make tough and savvy decisions.
In the early 2000s, several large corporations fell due to accounting scandals. To blame was deviation from the norm, and trying to be 'creative' in accounting practices. Since then the US government has put in place regulations that hold coroporations to a closer standard, but ultimately, its the business owner who must adhere to this rule of standard and unchanging accounting.
It goes without saying how important it is for a small business owner to utilize the services of a qualified accounting. By doing so, the entrepreneur can reduce the risk of waste, excessive taxes, and fraud among other things. For the sake of this blog post, lets take it for granted that all business owners use the services of a financial accountant.
Accounting rules often change over time to reflect changing business models and transactions. But, financial accounting as a business tool should remain stable. Accounting should evolve only after explicit consideration is given to why business transactions should be recorded and reported differently.
Rather than an attempt to school the reader in the details of financial accounting (something we say when we ourselves aren't knowledgable in a certain field of expertise), I will touch on a few of the most basic functions of accounting. It should be clear why these are better static, than in flux.
The General Ledger: This is the main accounting record of a business which uses double entry book keeping. Usually, a general ledger is divided into two sections. The left is for debit transactions, and the right is for credit transactions. Think of the center as the axis of a scale. entries should in a sense, balance. Some of the entries are for current assets, fixed assets, libilities, revenues, gains, etc. The ledger should be kept in balance, ideally. And a good accountant need not be creative to list entries, however, they can offer advice on how to keep the ledger more balanced.
Financial Statements: Sometimes called a financial report, this is a formal record of the financial activities of a business. There are three basic elements of a financial statement. 1) Balance sheet - usually posted at the end of a month, quarter, and/or yearly, this shows the financial condition of a company. A financial statement lists all the companies assets on one side, and libilities on the other. 2) Income Statements, sometimes referred to as a profit and loss statement, or P&L, highlights all activities within a company to make a profit (sales, cost of goods, and overhead, including salaries, rent, utilities, etc.) 3) A Statement of Cashflow shows all cash that flows in and out of your bank account. Not limited to cash associated with buying goods, and selling goods, cash flow statements can include borrowed money to repay loans. This activity isn't part of an income statement, but instead is listed on a cash flow statement.
Improving Business Decisions: We all learn from our mistakes. Thats a part of biological evolution, and financial evolution. A good accountant can point out areas that need adjustment, or improvement, but ultimately its up to the business owner to make decisions that will enhance the business, and stimulate growth of their business. Ask for your accountants advice, but don't be afraid to make tough and savvy decisions.
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