Most entrepreneurs tackle the start-up phase of launching their small business with a scrappy, wear-many-hats, get-it-done-at-all-costs mentality. Figuratively speaking, they have to build the plane and fly it at the same time or otherwise risk getting stuck in analysis paralysis.
But if you don’t pay enough attention to the basics of your company’s finances, how can you sustain the growth that comes from your hard-earned success? After all, one key to survival is containing costs while keeping your finger on the pulse of revenue and expenses.
Zoe Bogan, founder and CEO of ZB Agency, asserts in a recent AARP webinar that “every entrepreneur needs a trusted money team” as they transition from solo-preneur to business leader. Hiring a reliable bookkeeper and accountant can mean the difference between increasing revenue and leaving money on the table. Yet research shows that only 26 percent of small-business owners consult regularly with an accountant or a bookkeeper.
Understanding the difference between accounting and bookkeeping — and the value of both — can help you make smarter strategic decisions and maintain a better view of the financial health of your small business.
Meet your money team
Even after studying books and taking courses in entrepreneurship, small-business owners should continue to seek ways to improve their approach to their company’s finances. There’s always something to learn, even if you choose to outsource many of the financial responsibilities of your operation.
Consider the differences among the key functions of your financial team.
Chief financial officer: The CFO is responsible for tracking cash flow, financial planning and understanding the company’s financial strengths and weaknesses. This top executive can propose corrective actions and help you think strategically about the direction and profitability of your business. There are also fractional CFOs, who work with businesses on a part-time or contractual basis. Nancy Jacobson, a fractional CFO who was the winner of AARP’s 2020 Make Your Move contest, says these CFOs are becoming critical for start-ups and small businesses.
A small-business enthusiast and certified financial accountant, Jacobson believes that many small ventures fail because their owners don’t know how to make sense of their budgeting and cash-flow scenarios. Many need help tracking their finances but aren’t bringing in enough revenue yet to justify a monthly retainer. That’s why Jacobson launched Xtended Financial Resources, a fractional CFO service for small businesses that need affordable financial guidance.
Accountant: Your accountant is responsible for compiling financial statements, managing tax preparation and overseeing audits. Accountants can be an expensive investment, sometimes four times the hourly rate of a bookkeeper. But think of them as team members who play the long game. They should not record and maintain the daily transactions of your business. Develop a system in which you check in with your accountant quarterly, and keep the conversation focused on the big-picture financial concerns.
Bookkeeper: A bookkeeper is responsible for recording financial transactions and ensuring the accuracy of your journals and ledgers. They can calculate government remittances and create internal financial statements. It’s important that you understand how to keep accurate records of your day-to-day transactions, but be mindful of when it may be more efficient to hire a bookkeeper. When your business reaches the point that personally maintaining your financial books detracts from time you could spend growing your enterprise, you should outsource this task.