Accounting
Tips for Small Businesses
This is an interview I
conducted with Ellen DePasquale, a nationally recognized expert in small
business financial automation and founder of Small Office Success.
Q: What is the most
common mistake that small businesses make when purchasing accounting
software?
A: The most common
mistake is purchasing the software on someone else's recommendation
without taking the time to evaluate the needs of your business.
There are several
popular small business accounting programs that repeatedly receive
*Editor's Choice* awards in the computer magazines. Before running out and
buying that software, the small business owner needs to understand how
that software was judged, and what their business needs to obtain from the
software. For example, we all know that Intuit's QuickBooks is the best
selling small business accounting software. It is a great software program
and offers good functionality. It is easy to setup and use which is why it
is so popular. However, it lacks good inventory functions so it would not
be good for a retail company, or even a handmade crafts business that
required heavy inventory controls. On the other hand, QuickBooks Pro
offers good time and billing features, which makes it a program worth a
look for service-oriented businesses.
Q. At what point in
your business growth cycle is it wise to hire an outside accountant?
A. My advice is to
obtain an accountant as soon as you can afford one. An accountant is a
valuable asset to a small business because s/he offers experience and may
help a small business grow around some of the growing pains it would have
encountered without the accountant's assistance. Accountants do more than
reconcile the checkbook. A good accountant will help a client's business
grow through financial advice and business strategies.
Q. What are the
benefits of incorporation? What must a small business do to incorporate?
A. A small business
should weigh incorporating very carefully. Two important issues to
consider are liability and taxes. In NYC, corporate taxes are more
complicated to deal with than unincorporated taxes. Also, if you have a
sole proprietorship, and you do the work yourself, then you are still
liable -- personally -- for any problems with your work, not the
corporation. It is best to seek the advice of an accountant on this issue,
or at least do some extensive homework on the Internet.
Q. What is the best
accounting software for a consulting firm?
A. The *best*
accounting software is the one that fits the needs of the business. Not
all consulting firms are operated the same way, but there are standards in
the industry that should be included in the software. Since consulting is
a service-oriented business, software that efficiently tracks time is
important. The software should also produce *professional* invoices and
group transactions by job/project. Programs to consider include QuickBooks
Pro, Peachtree Complete Accounting for Windows Plus Time and Billing and
Timeslips.
Q. What's the best
accounting software for a retailer of computer hardware/software?
A. Again, the *best*
is the one that fits the needs of the business. Retail businesses, if they
have a physical storefront will need a *point of sale* (POS) system that
ties into the cash register and a bar coding system. If they have a
*virtual* storefront, then POS is not necessary.
Retail businesses also
need good inventory features that include reorder levels and backorder
tracking. Another requirement is an invoicing program that can handle
separate ship to and bill to addresses. The complexity of these features
depends on the individual business. Cougar Mountain has a POS module that
ties into their accounting software, but most POS software is stand-alone.
MYOB, Proven Edge Professional Edition, BusinessWorks and three different
Peachtree programs will all handle the inventory and shipping
requirements.
Q. What are some ways
that you can qualify your client's credit worthiness before doing business
with them?
A. A small business
extending credit should develop their own credit checking procedure. Their
clients should fill out a credit application that includes references. Of
course, good credit references are never a guarantee that this client will
pay all of their bills on time, but they do lower the risks. Find out the
credit limit, how well they pay and how often they buy. Other available
information is what kind of balance they have in the bank. A bank will
give you an answer such as *low five figures* so you can get an idea of
how much cash they have on hand. Also, check with the local Better
Business Bureau to see if anyone has filed a grievance about your client.
Lastly, you may want the initial sale to be cash and then offer a small
credit limit to start the ball rolling.
Q. What are some
effective accounts receivable collection practices?
A. The best practice
is to stay on top of your receivables. You need to know when a client is
late and contact them immediately. Stay professional and be very nice, but
firm to your clients. You have a higher chance of getting paid in full
within the first 30 days than if you wait any longer. And the longer you
wait the worse your chances of getting paid at all.
In most cases, it is
an oversight, or a backup of paperwork. Offer to resend the invoice if
necessary. Once you tolerate a late payment you are setting a precedent
for future collections struggles. Make sure your clients know you expect
them to pay promptly and most of them will.
If you want
information about going into a legal battle with a client, check out the
horror story on my site at www.smallofficesuccess.com/soscreditstory.html.
This is a long-winded story and takes a few minutes to load, but it is
very enlightening.
References
* SOS Financial
Journal -
www.smallofficesuccess.com/sosjournal.htm
has many links to valuable small business financial sites.
* BizTalk (www.biztalk.com/bizfinance.shtml),
* Quicken.com,
* SBA (http://www.sba.gov/financing).
Founder of Small
Office Success, a small business financial advice and information service
company, Ellen DePasquale is a nationally recognized expert in small
business financial automation. She designs and publishes the Small Office
Success Financial Journal (www.smallofficesuccess.com/sosjournal.htm),
an Internet E-zine that includes original content and links to additional
small business financial information. She has also written and published a
series of *how to* booklets on small business financial automation.
Ms. DePasquale may be
contacted by phone at 718-217-4522 or fax at 718-217-4394 or e-mail at
ellend@smallofficesuccess.com
Marnie Pehrson is an author, creator of
www.IdeaMarketers.com,
www.LocateACoach.com,
www.SheLovesGod.com,
www.BelieversAtWork.com and
more. She is the author of inspirational books like
Lord, Are You Sure? and
historical fiction such as
The Patriot Wore Petticoats.
She also helps people
earn money from home. For more
information on her projects, visit
http://www.pwgroup.com.
