Running a successful small business can be difficult and time-consuming. Hiring a trusted accounting professional is a must for successful small businesses. In addition to having an accountant, here are five tips that can help you run a successful small business.
1) Make Hiring Decisions
To run a successful small business, be sure you make all the hiring decisions yourself. Larger businesses are forced to delegate personnel decisions to a professional human resources staff, but as a small business owner you can afford to make hiring decisions. In some industries, you should be aware that the legal status of your employees is your responsibility and that civil and criminal penalties may destroy your business even if you did not know your employee was an illegal worker.
The process of hiring is a highly regulated area fraught with danger for small business owners. Learn what interview questions are illegal and understand what qualities you are looking for in an employee. Remember that it is far more expensive to fire a bad worker than it is to run your business understaffed.
2) Differentiate Personal and Business Accounts
Many small business owners treat their personal and business money as interchangeable. This is a costly error that can severely impact your ability to sell your business in the future and threaten any liability shields you have created. From the first day you open your business, treat the business as a separate venture that is independent from your personal finances. Open a business bank account, get a business credit card, and avoid paying for any personal expenses from a business account.
Vendors and creditors frequently extend trade lines and terms only to entities with a specific business credit history. Owners who co-mingle their personal and business finances make it impossible for their business to establish a separate credit history. Although the process of differentiating your personal and business accounts can be time-consuming, once you develop a good habit of paying for business expenses only with business accounts you will save substantial time on record-keeping.
3) Horde Your Cash
Many small business owners become enamored with sales and rush to expand their sales volume at all costs. Extending terms to your customers, stocking up on inventory, and growing your business are clearly important, but never forget that running out of cash will immediately kill your entire business. Your employees must be paid in cash, the IRS will not accept an IOU, and (somewhat ironically) lenders make small-business lending decisions based in large part on the liquidity of a company.
Incurring negative float–e.g. having an outstanding line of credit at 2% interest while possessing a cash balance generating 1%–can be frustrating, but this cost pales in comparison to the effects of running out of cash for even a day. When you are budgeting and forecasting, remember that the profitability figures are not necessarily the same as your cash balance.
4) Keep Good Records
At the small restaurant my grandmother owned, there was a shoebox in the office labelled “receipts”. Every time she paid for anything, she would put the receipt in the the shoebox. If she didn’t have a receipt for the purchase, she jotted the information down on a piece of paper and put that in the shoebox. At the end of each month, she would empty the box and total the receipts. To my amazement, the total always matched the net cash outflow from the restaurant’s bank account. This shoebox allowed her to keep accurate records to use for tax filings and later, when she sold the restaurant, to get fair market value in the sale.
I am not suggesting you use the shoebox method of record-keeping, but whether you use Quickbooks, a ruled notebook, or a shoebox, keeping good records is essential to running a successful small business. Your tax deductions, reported revenue, and thus your total tax payable will be based on your records. Incomplete or poor records can lead to overpaying your tax burden or, worse, to an IRS audit.
5) Segregate Duties
One of my former clients ran a lawncare service. He hired employees to care for the lawns and gardens in a wealthy neighborhood. After nearly a decade of sequential year-over-year profit growth, he suddenly saw a drop in profits for two successive years. Many dozens of hours of professional services fees later, we identified the problem. His new bookkeeper, who was responsible for writing checks, making deposits, and keeping records, had been siphoning a portion of the revenue, paying fake vendors and keeping the money, and altering the books to hide the fraud.
With one person in charge of all these functions, it was impossible for the owner to detect the slow drain on his business’ finances. If he has simple segregated duties by, for example, hiring a part-time bookkeeper to handle records and using different people to take care of deposits and expenses, it would have been very difficult for any one person to steal money from his business. Even the smallest businesses have multiple employees who could be trusted with specific tasks. Even the largest businesses have few employees who could be trusted with all tasks.