Wednesday, March 12, 2014

Mistakes entrepreneurs make: Part III

We get the majority of inquiries into our services in the first quarter of the year.  This is when people realize that it is time to file income taxes and that they don't have the business information organized for tax preparation.  So we get the call asking for help corralling all the receipts and deposit slips and other pieces of paper so the taxes can be filed.

A funny thing happens whenever we do this: the business owner is shocked at how much he/she spent on things.  "I spent that much on office supplies?", "We spent that much on packaging materials?!", "I couldn't have spent that much on meals during the year!".

You just can't run a business without financial statements.  Knowing how much money you have in the bank is not the same thing as knowing how much you are spending on various elements in your business.  Trying to run a business by looking at a checkbook balance just doesn't cut it.  The time and money you put into establishing proper bookkeeping/accounting will be worth it.  You can see right away that all the pretty office supplies are eating into the amount you have available for advertising and you quit visiting Office Depot.  If you don't have a P&L to study, all you know is that you don't have enough money to place that radio ad you wanted to have.  You don't know why you don't have the money or how you can cut back to save the money.

Cash flow is crucial at all stages of a business's life, but never more so than during start-up.  That is why an entrepreneur should establish accounting procedures before launching the business so they know right away if they are deviating from the plan and if changes or cuts need to be made.  So do your accounting-you will get the answers you need to run your business and you will be ready come tax time.

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