As a CPA that serves startups, I have seen many of the issues that they encounter. Because time is usually an entrepreneurs most valuable resource, the mundane administrative tasks are often the first to be neglected which often result in future, more challenging tasks. In practice, I see this almost daily with startup accounting and tax compliance. This article will explain practical ways that you might reduce the headaches you are likely to encounter by taking small steps in the right direction.
SEEK COUNCIL FROM A PROFESSIONAL
To many of you this might sound obvious. To others it might sound expensive. If you position yourself properly, seeking advice does not have to be expensive. In fact, it might be free.
Most CPAs who work with startups and small businesses will happily assist an entrepreneur during an introductory meeting and, if you ask around, you will find that most CPAs offer introductory meetings free of charge. Of course, the goal for the CPA is to earn your business. If the relationship turns into a long-term engagement, the fees that the CPA generates during that relationship will more than make the free introductory meeting worth it.
Once you have scheduled this free-of-charge meeting, identify a list of questions for that CPA. You would be surprised at how much assistance a good CPA can provide in an introductory meeting. The answers you receive at that meeting will help you set the direction for your start-up business.
KEEP GOOD RECORDS
Of all the mistakes that I have seen, this is certainly the most common issue I run across. And, it’s also the first item I am quick to resolve. Keeping good business records is not optional if you want to pay the lowest amount of tax. You need to have support for your deductions and failing to keep records will lead you to a dark place. You are just going to have to trust me on this one.
USE YOUR CALENDAR TO SCHEDULE ACCOUNTING WORK
Chances are great that you didn’t get into startups to do accounting work. In fact, the probability is that you hate the thought of performing accounting work. The problem is, accounting is a requirement of running a company. Without proper attention to detail on the accounting side, you are likely making poor budgetary choices. That’s fine if you want to keep your business a hobby. But, if you want it to be a business, you should act like one and that will require proper bookkeeping.
There is good news, however. Accounting work has become somewhat of a commodity with the rise of online accounting assistants. Or better yet, you can automate certain aspects of the accounting process with the right mechanics in place. Software programs like QuickBooks Online can make accounting simple by automating the categorization of your income and expenses. Automating the task will reduce the time you need to spend combing through your shoe box full of receipts. Think about how much time (and stress) that will save you at year end! I recommend that you schedule time on your calendar quarterly (or more frequently) to review your books and performance of the business, even when you have the help of a CPA. I will promise that keeping yourself closer to your spending will also help you make better business decisions.
STOP LISTENING TO YOUR NEIGHBORS
Everyone’s tax situation is different. No two businesses are the same. Your risk tolerance is different than all of your neighbors, friends, and colleagues. When you hear a neighbor or business contact talking about how much money they are saving because of this new trick that their CPA is performing, chances are they are stating that for attention, or their CPA is bending the rules. A good CPA should be able to provide you with alternatives and assist you with making the right decision for your business and risk profile It is a good reminder that while the tax law is literally written in black and white it is almost always interpreted in the grey areas. Ultimately, how far you venture into the grey is something that you need to be comfortable with.
FIND AN ADVISOR WHO YOU ARE COMPATIBLE WITH
I cannot stress this point enough. You need to interview CPAs to ensure that the advisor you are working with listens to you. And more importantly, you need to be comfortable calling them. If you cannot have an open dialogue with your team, how do you expect them to serve you to the best of their ability?
If you can commit to implementing these small steps in the early stages of your startup, you will certainly see a meaningful impact to your business, both now and as your business grows.