4 Things I Learned about Accounting Running a Small Business

Let’s have some real talk about the money side of a small business. I’ve been a freelancer for years and thought managing money was hard for an army of one, but once I became the CEO of BillyApp, I realized just how small those potatoes really were. Back then? That was easy.

Of course, easy doesn’t mean I’d get it right every time.

Now that the math is a tad more complicated, I quickly learned a lot about the accounting of an SMB. Here are 4 things that running a small business has taught me.

1. Numbers shouldn’t be painful.

Accounting is a lot like working out: it shouldn’t be easy, but it also shouldn’t be painful. If your shoulders hurt lifting weights, you may have something wrong with your technique. And the same goes with reviewing your weekly numbers. If it’s painful to review your sales and expenses, then that’s a sign that you’re doing it wrong.

For example, I always used to drag my feet on figuring out an accurate cash position for the business. This required reconciliation of invoices and expenses, calculating late fees, and using estimates for various projected deals. Then I realized: I hated doing it because I was doing it ad hoc. I was calculating the same numbers from scratch each time, which was not only a waste of my time, but a method that was prone to mistakes. So I sat down and created a cash flow forecast in an easily edited/updated doc and just like that, my cash position pain-point went away.

It’s a good lesson to learn: if there is a part of the accounting process you hate, figure out a way to make it easier. Because if you don’t, you might neglect an important part of your business that dearly needs your attention.

2. Cash is everything, so get paid.

Speaking of cash flow, what happened to the 80s and 90s when it was so easy to get a small business loan at crazy low interest rates? And remember how high interest rates were on the other side? My parents used to get 5% interest from a simple savings account! Apparently those were the days.

“Back in my day, we had something called a pension!”

Today if you don’t have cash-on-hand, you can’t pay your bills; and if you can’t pay your bills, no one’s coming to bail you out. The lesson I quickly learned is that in order to not run out of cash, I needed to make getting paid on time a priority. And the best way to do that is to take steps to make sure late or non-payments never happen in the first place, because preventative measures are much easier than dealing with late invoices after the fact.

I already wrote a post about this on AOL Finance for freelancers a while ago, but those tips still apply for small business owners:

• Don’t be afraid to charge late fees.
• Make your payment terms (and late fees) visible on your invoices.
• Make it ridiculously easy for them to pay you.

On that last point, a small business like BillyApp relies on recurring payments from customers and I’ve learned that giving clients plenty of payment options leads to less late payments. Consider payment apps like Stripe that will let your customers pay online using a credit card.

3. Break down big goals into small goals.

I’m not sure I’ve ever been as intimidated as I was when I first looked at our annual revenue goals. I don’t want to say I had a panic attack, but that bottle of red wine sure went fast. If you’re a small business owner, I’m betting you can relate.

RIP to all the stress balls I popped.

One of the best lessons I learned is to break down these big, lofty goals into something way more actionable. Let’s say you have a year goal of $100,000 in revenue. Your service costs X amount of dollars, so you can figure out how much you need to sell in one year to hit that goal. You also know your conversion rate is about Y%, so you know how many leads to get in a year. Break this down to per-week, and all of a sudden you have manageable numbers to hit.

The same idea applied to accounting as well. Thinking of the annual tax day is stressful, to say the least. I know to get the best return, I needed the most accurate numbers. So I broke it down to weekly tasks: account for all expenses for this week, invoice all my partners for this week, review my books and make sure nothing’s awry for this week. One good accounting week turns into two, then into a month, then months, and before I knew it I had an immaculate accounting file by the time taxes rolled around. Honestly, if my accountant assigned letter grades, I’d have gotten an A.

So spend an hour at the end of each week balancing your books, or use an automated system to do it for you. Managing the numbers as you go will make taxes a breeze in a year.

4. Accountants don’t always have your back.

Speaking of accountants, I learned something working with them too: their goals are not necessarily aligned with your goals. Strange! Don’t they want my business to succeed as much as I do? Well, unfortunately no one will ever want your business to succeed as much as you, the owner, will.

Accountants want two things: 1) to do a good enough job getting you good enough tax breaks so you’ll be happy with their work and come back next year; and 2) to not get sued. And the latter will always outweigh the former, if you had to ask. They really, really don’t want to get sued. This means they won’t push very hard to figure out the best tax breaks for your company. They know what breaks are safe, and they usually just go with what has worked in the past.

Now, I’m of course not advocating anything illegal or unethical when it comes to avoiding taxes, but it does behoove your small business to cut down your tax bill as much as possible in the right ways. That’s why when I started educating myself on the basics of taxes for businesses, I ended up raising a lot more questions and observations with my accountant that ultimately led to saving thousands on my tax bill. All legit! The difference was that I was utterly invested into saving every penny for my business while the accountant was just doing the usual.

It’s not that accountants are bad at what they do. Trust me, I desperately need my accountant and it’s also why Billy gives you access to a world-class accountant in our University. But understanding my company’s tax implications was an incredibly valuable lesson I learned to empowers me to engage with my accountant as a true partner, to save as much money as possible.

What lessons have you learned in running your own SMB?

Originally published as What I Learned from Accounting and Running a Small Business.