Episode Transcript
[00:00:00] Intro: Welcome to Financial Snickens, your bite sized information for entrepreneurs.
[00:00:12] Alisa McCabe: Today we're gonna be talking about the six key strategies to keep your business on track. Now everybody knows how important it is for a business to maintain best practices for company financials, while faults in our customer service or marketing can hinder your business.
[00:00:27] Pounding mistakes can stunt your growth and leave your company struggling to survive. Small business owners wear many hats dealing with duties ranging from marketing to inventory management, and everything in between. With the hustle and bustle of trying to stay on top of everything, errors can occur, especially with respect to accounting.
[00:00:48] Prudent planning and smart choices. Even accounting errors can be mitigated or avoided altogether. So here are the six things that we consider the best strategies to keep your business on track. Hire the best accountant and bookkeeper you can afford. In the end, it's gonna save you money. The do-it-yourself approach is a tough one, and even if you think you're up to it, proper accounting takes time and energy that you could use being devoted to other areas of your business.
[00:01:21] Sending out QuickBooks Online is an excellent idea, and this will help you track everything from your income to your expenses, and it saves time and headaches, but not every online financial tool is created equal. As such, it's important to do your research and find the right software for your business.
[00:01:40] Remember, the cash your business could lose through poor financial practices isn't worth the savings you make on cheap or free software. And doing it yourself can definitely work in the beginning stages of your company, and actually, we kind of recommend it. It's a good idea to know your finances inside and out before handing them over to somebody else.
[00:02:02] If you want an accountant or a bookkeeper that is qualified and attentive, be ready to pay a premium for those qualities by paying less for an accountant or a bookkeeper, you may think you're saving money. Hiring a subpar person can lead to missed deadlines and inaccurate reporting, and like financial software, competent accountants are worth the extra investment.
[00:02:27] They will not only have the ability to take care of the basics, but they might be able to offer you insight into the proper ways to spend your money and grow your business. On top of that, most professional accountants use QuickBooks to handle their client's finances. So if you started to use QuickBooks on your own, your new accountant and bookkeeper will be easily able to take over your books and understand the financials that they have in front of them.
[00:02:54] The second thing that you really wanna focus on is talking about finances and getting comfortable with it. Finances are hard to talk about, but you have to be able to discuss it with your accountant and your bookkeeper and make sure. That you understand what they're saying and what your financials are saying to you.
[00:03:15] If you've hired a really good accountant and bookkeeper, they should be able to explain to you what your financial situation is in terms that you understand. Find someone that's patient with your questions and is willing to teach you the things that you don't understand, and don't be too proud to ask because your personal lack of knowledge is not a flaw.
[00:03:38] You didn't study accounting. You didn't start a business to do this side of your business. This is really important when you're talking about money to find someone that you feel is competent and honest enough to give you an accurate picture of your business, but also is open and honest enough to discuss it with you in a way that you understand.
[00:04:03] Okay? Number three, control your expenses. Reviewing your expenses monthly or more frequently is a good habit to get into. You wanna know how much you're spending. This will help you stay in control of those expenses and help you to increase your profits. You really wanna look through your expenses on a monthly basis, at least to see if there's any expenses that are not essential that you could reduce by finding another vendor or asking for a discount.
[00:04:36] And over time, an incidental expenditure, like $20 or $30 here and there can add up. Your accountant and your bookkeeper should be able to help you with this. They will help you find out what percentage your expenses are of your income, help you to be able to reduce that. Number four. Personal and professional expenses separate.
[00:05:01] I can't emphasize this one enough. This is one of the biggest errors we see small business owners make. When you start a business, the first thing you should do is open a business checking account, and this is where all your income should be deposited. It's where all your expenses should come out of.
[00:05:19] Look, take it from me when I start my business. I didn't do this. It was a mess to try and untangle it, and then once I did, I was so happy to have everything all in one place. So keeping your income from your business separate from everything else, like your personal income, it reduces the likelihood of errors that are bound to happen when using a single account.
[00:05:44] It can also help you stay compliant with the I R S regulations. All right. Number five is choose the right accounting method. There are two main methods, the cash basis and the accrual basis. The cash method is when you record income, when it's received, and you process payment transactions at the time of payment.
[00:06:07] And the cash method deals with the actual flow of cash coming in and out of the business. And most small businesses run their business and pay taxes. On the cash basis, the accrual basis accounting method, on the other hand, is when you record the expenses and income when the transaction occurs, which means when you invoice your client, that is when you are recognizing that revenue, not when they pay you.
[00:06:36] That would be the cash method. Now, either one of these methods, You really need to talk with your tax planner about it and what makes sense for you. There are typically special filings you need to make to process your payments and to process your taxes on an accrual method. When you run your reporting, we always suggest you do it on an accrual basis because it helps you to understand how many sales you're making as opposed to how many come in.
[00:07:05] Alright, six. Are you hiring employees or contractors? This is really key because it makes a big difference in how the I R S will look at your books, and how you do your reporting. The I R S classifies workers into two basic categories. You're either an employee or an independent contractor, and there's a lot of difference that goes into making that distinction and making sure you know the difference for employees.
[00:07:33] You'll have to pay payroll taxes on full-time, part-time, or temporary employees. And this means you're also responsible for paying a portion of your employee's contributions to Social Security, Medicare, as well as withholding a portion of their paycheck for the federal tax. Now, for independent contractors, it is completely different.
[00:07:53] You don't need to deduct anything from an independent contractor's pay, but be aware that however, if you have control over the structure of the work that your independent contractor is doing, the IRS may classify this person as an employee, which could lead you to pay back taxes and state taxes to these agencies, plus fines.
[00:08:18] An interest for more information about how the I R S defines contractors and employees, I'm putting a link here so you can find out more about it. So these are the six things that are key strategies to keeping your company on track. If you wanna talk more about these strategies and other information, head over to our website at firststepsfinancial.com and click on Let's Chat button and we can talk more about strategies to keep your business on track.
