More than three-quarters (78%) of small business owners haven’t completed any formal business training. But 83% of them consider themselves knowledgeable, very knowledgeable, or extremely knowledgeable when it comes to accounting and finance.
Are leaders overestimating their savvy?
Absolutely, says CPA Courtney Thayer. “Business owners often feel knowledgeable about their finances just because they get their taxes done every year,” she says.
And Thayer knows firsthand how challenging it can be to stay on top of the books as a business owner. “I was my own worst client,” she recalls. “My own small business was so busy and grew so fast that I lost complete control. I was too busy to categorize or reconcile transactions for two years, and it became an absolute nightmare.”
Thayer says that when it comes to your small business bookkeeping and accounting, you probably know less than you think you do, but you can do more than you believe you can. The trick is finding and using the best support to achieve your business goals.
And here’s how to do exactly that.
Step 1. Acknowledge you need help to grow
Envision your business as wildly successful. What does it look like? What does the thriving company provide for you and others?
Now imagine an immovable roadblock between you and that end goal. That’s your disorganized and ineffective accounting processes. And until you realize its power to prevent your venture’s success, that obstacle is here to stay.
“You’ll never grow unless you realize you’re not an expert at business finances,” says Thayer. “And that’s okay. It’s fine to not know accounting if you’re not an accountant. But you do need to recognize you’ll need some form of assistance.”
Experts at Harvard Business Review have shown that entrepreneurs are often optimists, reluctant to identify their own weak points. Case in point: On Feb. 28, 2020, 66% of business owners said they were prepared for COVID-19 to become widespread. A few months into that exact scenario, though, 87% say they’re struggling to survive. Similarly, self-assessing your financial knowledge may make you feel capable, but make an honest rating of your current visibility into the inner workings of your business.
“To get an idea of how much a business owner knows starting out, I always ask a series of questions,” says Thayer. “Like ‘Do you know what you’re spending in each category right now?’ or ‘What are your current credit card processor fees?’” And a business owner doesn’t need to know the exact answer off the top of their head, she says, but they should have a ballpark idea, and they should know exactly where to go to get the (accurate) specifics.
If they don’t, they’re missing a host of key insights into the health of their business. Plus, they probably need better organization to boot.
“So, the first step to success here is just acknowledging you’re an expert in your business, not your business’s finances,” says Thayer. “And you’ve got to know that that’s okay. That’s why tools, teachers, and practitioners like me exist.”
Something else you should acknowledge is your goal. Thayer says there are a few types of business owners out there:
- Some business owners don’t want to know anything about their finances. They want it handled 100%. This means they won’t know details like how much they could accrue over time in tax savings, or how their managers are spending money.
- Some leaders want to know where to get answers, but nothing more. These business owners may have heard a commentator say that one or two metrics trump others in importance. Then, they’re fixated on measuring and improving those measurements, and largely ignore the rest.
- Some business owners want to be alerted of any anomalies or trends. This is the business owner that needs help monitoring their financials for changes or trajectories that deviate from their goals.
Now that you’ve recognized you’ll need more knowledge to grow (and you’re now okay with that), it’s time for the next step.
Step 2. Decide what kind of help you need
Amid the many options for bookkeeping and accounting help, business owners must choose the option that fits them, their industry, and their goals.
“Most business owners want to make as much money possible in the least amount of time while paying the fewest possible taxes . . . all without getting audited,” says Thayer. “And for that, you’ll need help.”
LEARN WHAT KIND OF HELP IS AVAILABLE
Would you like to learn how to keep your books and reconcile transactions by yourself? Or would you like to hand off the task to a mobile app? Perhaps you prefer the keen eye of a human being.
There’s a variety of possibilities for you to choose from when looking for help, but every combination involves technology. That means you’ll be choosing from the following options:
- Software alone. This choice involves a tool that helps you scan, categorize, track, and manage transactions. The right tool, like Neat, can even automate reconciliations for you. If you want to grow, however, you’ll still need someone to prepare your taxes, run and explain financial statements, and analyze your cash flow.
- Software + a teacher or coach. “This scenario means you’ll hire someone to teach you all the administrative tasks of bookkeeping and basic accounting lessons—knowledge you’ll need to do the work yourself,” says Thayer. “This requires an upfront time investment in learning, and it also means you’ll be investing hours regularly to keep up with all the work.”
- Software + a bookkeeper. This option often creates redundancies, which means you pay double when work overlaps. These days, business owners are instead finding tools that replace human bookkeeping work to streamline and cut the cost of manual labor.
- Software + accountant and advisor. This combination is for the ambitious business owner who wants to grow—and wants to use data to do it. The software frees up the business owner to focus on their company’s operations and allows the accountant to focus on deeper strategic insights.
- All four. It’s entirely plausible to subscribe to a tool and then hire a teacher, a bookkeeper, and an accounting advisor. But it may not be sustainable, especially if you intend to grow.
MAKE A DECISION AND PLOT YOUR COURSE
Compare the implementation of these choices to the goals you established above. Which one fits best with your temperament and schedule? Do you have the patience to do it yourself, for example? Can you spot downtime on your current weekly calendar where you’ll be able to perform accounting tasks? And are you known for impeccable attention to detail? Also, which combination of options above best suits your industry and business model? The answer to those questions will lead you to your best option.
Once you’ve decided what combination of helpers you plan to employ, determine when. Make a timeline for finding and implementing your solution. Include wiggle room for trial and error.
Once you’ve decided on a plan and mapped it to your schedule, you’re ready for the next step.
Step 3. Collect your source documents
Next, you’ll need to compile all the files that tell your business’s financial story.
“Not understanding or appreciating the importance of source documents is among the top reasons business owners avoid their own bookkeeping,” says Thayer. And that can be remedied just by learning what they are and how to manage them.
Source documents are the communications that validate any financial transaction. They include email confirmations, receipts, invoices, purchase orders, payroll registers, bank statements, deposit slips, bills, checks, and more.
Each source document must have an explanation of the transaction, the date, the amount, and, if applicable, a signature proving the exchange was authorized at the time.
Collect the source documents from the beginning of the year. Or, if your business has never had any kind of record-keeping, then from the genesis of your company. You’ll need these to help you determine if an expert is a good fit for you.
Physical files can be collected in a folder (or two or three), and until you have an adequate tool, you can compile digital files in a program like Dropbox.
Step 4. Vet and choose a partner or tool
You’ve decided to partner with either an accountant, new hire, or tool (and its team). Here are some tips for choosing the best one.
AVOID RELYING ON SOFTWARE CERTIFICATIONS ALONG
It’s tempting to trust your software’s certification standards to find a helper. But Thayer says advisors with software certifications often lack accounting knowledge.
“There’s a difference between a software certification and a real-world knowledge of economics and accounting,” she says. “QuickBooks-certified advisors can always tell you ‘download this, click on this, and it’ll do this,’ but not all of them know why.”
So instead, look at user reviews (for programs) and client testimonials (for accounting professionals). Read customer case studies. Get a free consultation with select professionals. Ask fellow business owners for recommendations. Consult Neat’s directory of trusted accountants. Consider entering a short-term contract before signing on long-term with someone. And take notes along the way so that if your favorite choice doesn’t pan out, you have a record of what you learned.
FIND SOMEONE YOU “CLICK” WITH
According to research from Intuit, 89% of business owners say an accountant or advisor makes them more successful. To find the helper that will make you most successful, you’ll need someone who is organized, responsive, and curious enough to follow a hunch to investigate an oddity if one arises in your books. They should also be a great manager of time, detail-oriented, and creative, always looking to provide you with the most value possible.
If the support you chose is an app or program, then make sure you can:
- reach a friendly voice in their customer care department,
- verify real customer stories in user forums like G2, Reddit, and SoftwareAdvice,
- and read about side-by-side comparisons in publications like PCMag or Top Ten Reviews.
Step 5. Set up systems to avoid letting your books go again
Without constant diligence, your books will fall into disarray again. Every business owner needs to establish habits to prevent that.
Remember Thayer’s own business “nightmare”? She ended up getting her books back together and staying on top of the bookkeeping work . . . for a time.
“I gained control just long enough for it to happen all over again,” she laughs. “But this time, I knew how to get through it. The second time it happened, I didn’t let it go as far. I got control of it faster. And I asked for help when I needed it, and we made it work.”
Recall also the optimism discussed earlier. It’s tempting to believe it’ll work itself out.
Instead, be realistic and set up systems to ensure you stay on track:
- Block off a recurring daily calendar appointment to collect and record all incoming and outgoing financial activity.
- Set (and keep) a dedicated time to ensure your new tool is automatically reconciling all transactions in real time—not just monthly.
- Talk with your accountant at least twice a month to ask questions and gain insights.
All steps accounted for
Thayer says most business owners start this exercise with the goal of handing off the mental burden along with the task. But the more they see their helper’s findings, the more involved they get, and the healthier the business becomes. And that visibility comes from steps like these—realizing where you are and where you want to be, exploring your options, choosing one, and then staying on top of your accounting from here on out.
Remember that all the options for understanding and using your business’s financial information involve technology. To experience that technology firsthand, start a free trial of Neat today.