Source: https://financialpost.com/entrepreneur/business-strategies-staying-on-top-of-finances-is-in-the-details?r
Business strategies: Staying on top of finances is in the detailsAndrew Tait’s story is pretty typical of a startup. The founder of Tait Labs in Vancouver started his company three years ago fresh out of university with a goal to develop natural ingredient products for brain health. While he has some background in sales and business, time was not on his side when it came to finances. That’s when he decided to get some help.
Author of the article: Denise DeveauPublishing date:May 14, 2014 • May 14, 2014 • 3 minute read • Join the conversation
Andrew Tait’s story is pretty typical of a startup. The founder of Tait Labs in Vancouver started his company three years ago fresh out of university with a goal to develop natural ingredient products for brain health.
It started off basically as a glorified science project,” he says.
While he admits to having some background in sales and business, time was not on his side when it came to finances. “When I took over a small office I had no viable business plan. But you have to know how you plan to raise money and what to do with the proceeds. Every penny needs to be accounted for.”
He decided some help was in order. “I didn’t have any difficulty with the basic concepts of finances. My first part-time job when I was in Montreal was filing tax returns for an accountant. I just wanted to focus on other things.”
After applying to the Canadian Youth Business Foundation for the Financial Bridge Builders program, he was linked to Elaine Morgan of BalanceSheets.ca, a bookkeeping service in Ottawa, to get a grounding in what financial statements are, how to bill clients, recording transactions, and tax obligations, among other basics.
“When businesses take off, there’s often a spiral where they’re running as fast they can to produce products and services, but they don’t have the proper bookkeeping and accounting infrastructure in place,” Ms. Morgan says. “Or they may have made a start but end up going down the wrong road.”
Mr.l Tait says that’s exactly what happened to him. “We were facing an extreme backlog. We had everything, but it was a matter of having someone show me how to put things together.”
There’s more to managing the books than recording sales and invoicing Ms. Morgan notes. “If you have a loan payment for example, what part goes to principal or to interest? How do you enter fiscal expenses? Are there deposits or expense outlays that don’t add up in your statement? Those things sound mundane, but it’s really a matter of making sure everything is going to the right places.”
Many small companies make the mistake that money in the bank equals profitability, says Wayne Weskin, president and chief executive of Premium Bookkeeping Services in Calgary.
“They very often rely on their bank statements, without considering they may owe thousands of dollars to the government and other people. They won’t see it all if they don’t keep the books properly, so just start withdrawing money for whatever reason. I’ve seen people go broke because of this.”
Another common mistake is the tendency to combine personal and business accounts and credit cards, making things even more challenging, he adds. “Their groceries and Staples order may end up on the same credit card. Or they put their family vacation on their business card. But you need to treat these things differently.”
While accountants offer the big picture with tax strategies in mind, bookkeepers are all about the management side, Mr. Weskin says. One of his main functions is generating regular management reports that include information such as sales, cash flow forecasts, and performance comparisons to previous months/years.
“Reviewing them monthly will show exactly how your business is going and if you’re heading in the right direction so you can make fixes as you go along. If you leave things to the end of year, it might be too late.”
When seeking out a bookkeeping service, he strongly advises checking references and experience, including experience in your industry. Also ensure the bookkeeper has a contingency plan if he or she is unavailable. “If your bookkeeper goes away for four weeks, that’s a problem if they have no backup,” Mr. Weskin says.
There are also plenty of educational resources available, including business incubator communities and government agencies.
Cloud accounting offers an easy and simple way for small businesses to keep their ducks in a row, Ms. Morgan says.
“With all the new technologies and cloud accounting software, you can just ‘pop in’ when you have a question. If you stay on top of things throughout the year and record everything properly, you will have a good set of financial statements to work from by the time you go to your accountant to do your taxes,” she adds.