Food Mentors: Newsflash Bookkeeping is Boring But You Have to Do It
And Other Surprising Facts About the Food Industry
Let’s start with what you already know about bookkeeping: It’s that thing you do in the back of your spiral notebook, if and when you can find a pen that works. Or maybe it’s that thing someone else, whose name you can’t remember (or an online service, or accounting bot), does in a faraway land. While you’re busy sharing your beautiful ideas with an enthusiastic world, the numbers crunch themselves. The sheets gets balanced. Everything turns out happily ever after.
Now here’s a real-life scenario: It’s 3 am and you’re stooped over your computer screen, heaps of receipts and bills at your elbows, scrambling to make sense of what went wrong. You’re not delusional. Your creations are indeed beautiful. The world is more enthusiastic about your product than ever. And your business is about to shut down. “WTF?” your brain repeats as you watch your dream hit the proverbial wall, like a car crash in slow motion.
Let’s back up. Remember the part about how bookkeeping is sexy? A company can produce the greatest product on earth — a cross between a 70s Lamborghini, a Tesla rocket and Ayrton Senna behind the wheel — but as an enterprise, what makes it sexy is all under the hood. When you pop the hood of your business and open the books, you reveal the current health and future potential of your company.
How’s this for hot: You’re hitting a plateau and you need a clear 100K to take your business to the million-dollar profit level; the right numbers in your books get you the loan. You’re about to meet with a co-packer who only works with the top players in the market; your impeccable credit record convinces them to partner with you. You’re about to take a big risk with a new product release; your numbers help you evaluate just how far you can safely go, but still take the leap that your company needs to stand out. You release with confidence, and that translates into a batch of new investors.
Do we have your undivided attention? Great. Get that pencil behind your ear, strap on the visor, and listen up.
First we spoke to Terence Hanley of Find a Way LLC, which specializes in the “headache-inducing tasks” of the hospitality industry, “so [the restaurateurs and chefs] can do what they love”: accounting, payroll, compliance, HR. (Slow clap, amirite?)
What is a good bookkeeping strategy to initiate upon starting a business?
Terence: When setting up the books, start with not what you currently need, but what you think you will need two years from now. As busy as you are when you are starting out and you think you don’t have time, it’s going to get more complicated and you will get busier (that’s a good thing!). So instead of trying to catch up, it’s better to start with a good game plan from the beginning. And don’t be afraid to ask for help from similar companies. Copying someone’s setup (chart of accounts) is a lot easier than coming up with a new one on all on your own.
Without hiring an accountant, how do I manage my own taxes and accounting as a new business?
I would never advise someone to manage their own taxes without an accountant or lawyer. No one runs their own payroll, yet plenty of people try and fail to run their own books. That doesn’t mean it’s impossible, but it is very difficult to do successfully. But, if you absolutely positively have a disdain for professionals, then ask for help from friends who run similar businesses. They can at least help you avoid the most costly pitfalls.
What are some best practices?
-Quickbooks Online is the easiest software to use that is still powerful enough to provide the reporting that you need.
-Don’t just assume that Paychex and ADP are the best for payroll. Smaller, newer companies like Gusto might be better for a small company and they are way cheaper.
-Set up completely different business banking and credit card accounts and keep all personal expenses separate from business. If the IRS deems that expenses are too commingled, they might disallow all of them.
-Set aside an hour or two each week where all you focus on is bookkeeping and financial performance.
-Ask for help when you need it, don’t just avoid the issues.
To make sure we had the subject covered, our t’s crossed and our i’s dotted — in the spirit of the subject, as it were — we asked another CPA, Arnold Macalintal of Wiss, to take a stab at the same questions we asked Terence.
What is a good book keeping strategy to initiate upon starting a business?
I recommend using an accounting software (like QuickBooks) right from the beginning. This eliminates a lot of the potential for error that is inherent in the use of excel and it starts building the foundation of your accounting system.
Additionally, specific time should be set aside to update the accounting records. There is so much going on in a business’ early stages, that it becomes very easy for the accounting records to be ignored until it’s time to file the tax returns. However, up to date accounting records are necessary to running the business efficiently as the accounting provides you with information needed to make decisions for the future. At the very least, the accounting records should be closed and reconciled after the end of each month.
Without hiring an accountant, how do I manage my own taxes & accounting as a new business?
As noted above, it is best to use accounting software such as QuickBooks. Most accounting software is user friendly and easy to learn — at least the posting of receipts and expenses. Often, at an early stage, I see the entrepreneur taking care of the books themselves or receiving help from friends or family with an accounting background.
Regarding the tax returns, I recommend hiring a professional as you want to make sure they are prepared accurately. As the business grows and you reach out for financing — whether from a bank or outside investor — more likely than not, they will request the business’ tax returns. With this being the case, you want to make sure the returns present an accurate picture of the business.
What are some best practices?
- Aside from the items noted above, you should make sure to prepare a short term and long term cash flow forecast. It is always better to be proactive and plan for cash shortfalls rather than react when it’s too late as finding financing could prove to be more expensive.
- Monitor your accounts receivable and make sure you are receiving payment for product/services in a timely manner.
- Do not mix business expenses with personal expenses as there are tax and investor implications to this.
- Do not be afraid to ask questions — sometimes uninformed decisions can have consequences that cannot be reversed.
Written by Monika Norwid