|By Giorgio Cagliero|
Question: After retiring I have decided to start my own small business and want to make it successful from the beginning. What does SCORE see as the most serious shortcoming of new small business owners?
Answer: There are very few small business owners who understand accounting or are able to effectively use their company’s financial statements to operate their businesses as a management tool. Financial statements are the “report card” of a company’s business activity. If your business is beginning to develop financial problems, these will first be evident in your company’s periodic financial statements. If you want financing, the banker or lender will want to look at the company’s past “report cards” and will expect the business owner to understand them.
Understanding accounting and how financial statements work is not simple. In fact, because it is sufficiently complicated, accounting software systems such as QuickBooks® and Quicken®, have taken many of the problems away by allowing users to create sales invoices, pay their bills, pay the payroll, order materials, manage inventory, create estimates for work to be done and perform many other tasks without ever understanding the accounting basics that these systems provide unseen in the background.
However, these computer programs presuppose that your chart of accounts has been properly established. Carol Gilson, of In-Balance Bookkeeping, (CaGilson@aol.com) explains, “The number one important factor when you start a new business is to have someone knowledgeable establish your chart of accounts. If you hire someone without experience, then you end up later having to hire a professional at a greater cost to clean up the situation created by not using an established, reliable bookkeeper in the beginning.”
“Also”, continues Gilson, “these computer programs are not extremely user friendly and often misinterpret what the individual business person really needs. The chart of accounts must be customized to suit the specific business before an individual owner starts to input on their own. A good bookkeeper helps the business owner by explaining these systems, how they work, and how they benefit the business. The chart of accounts is the most essential tool for the future health of any business, so make sure you start off on the right foot.”
When you first establish your business you need to have a team that includes an accountant and a bookkeeper so that everyone works together so you can utilize their expertise to know what is going on in your business. If you can rely on and communicate with professionals who can explain what is happening with the business, this will allow you the freedom to market your business and increase your sales.
So how do you learn about accounting and chart of accounts management? First, you can take courses; Yavapai College offers basic accounting. You can attend workshops and seminars conducted by SCORE, the Small Business Development Center, and others. You can, and should, seek the assistance of a good bookkeeper or CPA who can provide direction. Whatever you choose, learning and understanding accounting and how to use your business’s financial statements is absolutely essential. Don’t forget to rely on your SCORE counselor as a resource for information on the fundamentals of establishing a new business. Your individual counselor can provide a well-spring of information that will enable you to make sound judgments for starting your new business off correctly.
SCORE is hosting a Social Media Workshop in Prescott with Ken Colburn, the Data Doctor. Feb. 25, 9 a.m.-noon, Adult Center, 1280 E. Rosser St. $25 per person. To register or for more information, contact Northern Arizona SCORE: 928-778-7438, Web site, www.scorenaz.org, email firstname.lastname@example.org