Everyone hates accounting! There are articles, websites, even clothing dedicated to the idea of hating accounting. This is a common theme among small business owners. Business owners start their businesses to pursue their passion and most do not have much, if any, accounting background. Recent studies by the U.S Small Business Administration are showing that 50% of businesses will fail in the first five years of operations. The U.S. Small Business Administration quotes the following reasons for small business failure:
- Lack of experience
- Insufficient capital
- Poor location
- Poor inventory management
- Over-investment in fixed assets
- Poor credit arrangement management
- Personal use of business funds
- Unexpected growth
As CPAs we would like to add one more: Lack of sufficient accounting records. Most business owners are getting the proper groundwork done: setting up a separate business bank account and tracking payables and receivables on at least a monthly basis. They see money coming in and going out and as long as that bank account is positive they believe the business is surviving. We realize taking the time to input income and expenses as a small business owner into even an Excel spreadsheet seems too time consuming when all effort needs to be dedicated to the business. However, with the right accounting system you can actually save time, have a grasp on the profitability of your business and be prepared for future growth.
With the use of an effective accounting system we witness clients having less stress at year end, being more efficient with their tax liability and saving money on tax preparation fees. Accounting systems are also very important for future growth. Most small business owners fund their business through their personal finances initially. When the time comes for additional capital (note that is number two on the reasons given by SBA.gov that most businesses fail) the first thing the bank will request are your financial statements. Being proactive with a solid accounting system makes this a seamless process.
The good news out there for business owners today is that you do not have to be an accountant to have a successful business accounting system. Over the next several weeks we will discuss some of the traditional and newer cloud based options on the market and how they can help develop an accounting system for small businesses. As always, we are here to help and have the resources to help get you started on an accounting system that will work for you!