Advice For Managing the Books From Someone Who Knows

Accounting concept

Being an entrepreneur is no easy task. Once you have the idea and have figured out the means to put a plan in motion, the hard work begins. Getting a new business or startup going is only part of the battle. The hard part is keeping that business going past the first year, or the second, or even five years down the line is where the real challenge lies. The number of new businesses that fail within the first five years is over 50%.

Getting things right early on in a business’ life is vital to its success. This means getting and maintaining customers, creating revenue, and last but not least, managing its finances. Unfortunately, accurate and efficient bookkeeping is where many new business owners struggle. Too often, people leave the details until tax time and then discover the mess they’ve created by not organizing things from the start. But there are tools available to help small businesses and startups streamline these processes.

Garret Baird Headshot
The Neat Company President & CEO Garrett Baird / Photo courtesy of Garrett Baird

Who Is Garrett Baird?

Garrett Baird is the president and CEO of The Neat Company, which was founded to help small businesses get organized. They’ve been in business for over 19 years now and began with the concept of developing revolutionary hardware devices that scan receipts. This tool helps people digitize those receipts on the go and later use them to create expense reports quickly and efficiently. As the company evolved, they’ve focused more on the software side, including the ability to scan digital business documents, allowing for storing both the image and the metadata associated with each image. They’ve since branched into the world of digital bookkeeping as an extension of their historical focus on organization.

Baird’s personal experience as an entrepreneur and business owner himself and his extensive time at The Neat Company give him a unique perspective on how to harness the tools available for managing the books of a new business.

Get Started Right, Right From the Start

Baird stresses the importance of getting everything lined up before starting. This includes finances and how your company will organize its expenses. He harkens back to his own time as an entrepreneur and the creation of his startup. He says he followed the footprints laid out on social media and the internet for advice on how to get started, including how to form an LLC. One of the biggest first steps entrepreneurs can take relating to organization is establishing a business bank account and using it correctly.

“Keep your expenses separate from your business expenses so that when it comes time to report on your business, you can do so easier,” Baird says. According to Baird, most people make the big mistake of not separating business expenses when they get started, making everything more complicated as time goes on. “In our experience at Neat, helping our customers separate those personal transactions from business transactions is one of our key capabilities,” he says.

When opening that first business bank account, Baird says it’s beneficial to get a credit card associated with your business at the same time. This will aid in separating those business and personal transactions, but it also enables you to build a positive credit history for your business and earn points for business expenses. “We see the intermingling of business and personal expenses,” Baird says. “It’s a problem that we help entrepreneurs solve. But it is made easier if you get that bank account straight out of the gate.”

Know What Constitutes a Business Expense

Baird reminds us that the IRS has strict rules about what qualifies as an actual business expense. There are times when a late-night trip to the grocery store might produce a receipt with expenses intermingled on a single transaction. “You can itemize the business expenses from the personal expenses,” Baird says. “There’s lots of guidance out there on interpreting what is a business expense. It’s ultimately best left to a CPA to advise you on that.”

As far as legitimate business expenses, Baird says a big mistake people make is not keeping track of those receipts. A client lunch that costs $80 might qualify, but there’s no way to track and remember that expense without a receipt. Many people will swipe the card but forget the receipt or simply throw it away. “Having that source document is critical,” Baird says. “Should you be audited and have your return examined by somebody, they’ll take every transaction, particularly those about $75, particularly those focused on things like entertainment, and seek source documentation.”

Ditch the Paper Receipts

Baird says that some entrepreneurs will use the paper receipt to record information about the expense that might be called upon later. “Many people will just literally write on the receipt: who was there, their names and what companies they work for, as part of that documentation,” Baird says. Having the information documented and organized will become critical to reducing the risk of a potential audit. “Audits can be ordered at random,” Baird says. “Certain things about how your return is laid out and structured may trigger an audit.”

The Neat Company helps entrepreneurs stay organized by offering them a quick, simple way to digitize those receipts and avoid the shoebox full of paper at the end of the year. “Instead of worrying about that piece of paper, why not just open an app, take a quick snapshot of it, and have the data extracted quickly,” Baird says. “Then be able to even match that to the transaction, that may eventually flow into a system that makes this all super easy.”

Streamline the Process

The Neat Company also offers clients an easy way to store and categorize digital receipts, like emailed receipts received after online purchases. The company offers dedicated email accounts linked to the app that automatically categorize your expenses, no matter the format.

According to Baird, streamlining processes involved with managing finances should be the goal. This allows entrepreneurs to focus on the important tasks involved with growing their business instead of wasting time pushing pieces of paper around. In addition, minimizing the amount of back-office and administrative work can be extremely beneficial in the long term.

Choosing Your Software

Baird says to determine the best software program for managing finances. It’s imperative to consider the needs of the business. “What is my hierarchy of needs when I am a small business owner?” he says. Selling products and getting paid for services should be a top priority. But being able to manage expenses and become an effective bookkeeper is also vital down the line.

Choosing software that allows for electronic invoicing can be a great tool for service-based businesses. Digital invoices help to streamline the recording process, offering owners a digital record of customer interactions, a method of collecting payment, and mechanisms designed to remind customers who haven’t made that payment. Electronic payments are also infinitely faster than waiting for a paper check to arrive.

But entrepreneurs must look for a way to manage expenses and revenue. According to Baird, having all of your expenses and corresponding receipts in one digital repository is a must. From there, being able to stream in the transactions on the other side of your spending is critical. “Connecting your bank accounts via modern transaction streaming technology is key,” Baird says. “So, if you’re not being asked to connect in your bank account with a modern bookkeeping solution, you’re probably stuck using Excel, or you’re with a provider that isn’t quite up to date yet.”

Centralize Everything

According to Baird, it’s all too easy for business owners to get overwhelmed because their financial management systems are spread out and not centralized. “Oftentimes somebody will have their business bank account with one bank. They’ll have their credit card with another provider, and a third account with somebody else, maybe a business loan,” he says. Instead, centralize all these accounts by streaming transactions into one place. Choose a program that offers owners a way to view the overall health of their business all at once, including seeing income and expenses together.

And then, it becomes about flexibility, such as the ability to quickly categorize expenses and create ease in reporting. Baird says it’s a given that bookkeeping is an essential task related to business ownership. Still, most people underestimate the tools available to them, which can help to streamline and centralize the information. While still available and acceptable, the old-fashioned ledger system and spreadsheets don’t offer owners the same opportunities as the more advanced technology out there now.

Reconciling – The Last Step

For many entrepreneurs, handling the finances of their business requires the assistance of a professional accountant. Or at least it used to. Thanks to advances in technology, it has become easier and simpler for people to handle every aspect of their business finances themselves, even the complicated parts that used to be left to someone with special training. When it comes to the basics, like tracking income and expenses, many people believe they have enough knowledge to figure it out on their own. But then what?

“When I was kind of the CFO of this startup that I founded, I would set things up,” Baird says. “I would invoice my customers. I would then look at my expenses and make sure they were categorized in the right way. And then I was in this situation where I was like, ‘Am I done?'” Baird says. At this point, Baird hired a professional accountant to look things over for him. He recalls asking the accountant the same question he asked himself, and the accountant responded that he had done most of the work. The only thing left for the accountant to do was reconcile those expenses one by one.

The amount of paperwork left to the accountant at the end of the process led Baird to appreciate the simplicity of paperless reconciliation. Walking through transactions one at a time can uncover many errors, Baird says. But utilizing technology to perform this process more efficiently, and even immediately when the expense occurs, allows streamlining that makes managing the books at the end of the quarter so much easier. “You run that report, look at that dashboard,” Baird says, “These are super valuable insights that I wouldn’t have otherwise had about the health of my business and where I can potentially go from here.”

Baird’s Top Three Practical Tips for Entrepreneurs

1.   Keep it Simple

One of the first steps entrepreneurs can take to help themselves manage their finances is categorizing things. To do so, many new business owners get overwhelmed and overcomplicate their methods. “We try to keep the language in our solutions as simple and straightforward as possible for somebody trying to operate a business,” Baird says. “Keep it simple with just basic categories that help explain your business and the primary buckets of spend.”

2.   Utilize Digital Technology Whenever Possible

Digitize your receipts, digitize invoices and payments, and digitally stream transactions from a bank account. Baird points out that the world has been slowly turning toward the digital and going paperless for many years now, and the future is going to continue that path. “You can wind up with everything digitally organized into one centralized space, very conveniently.”

3.   Be Confident in Your Abilities

Baird knows that CPAs and accountants will always have a place in the business world, but business owners and entrepreneurs shouldn’t underestimate their abilities to manage finances. “the business owner can always get things started,” Baird says. “be confident in your ability to prepare yourself for taxes, prepare the accounting reports, and see the health and near-real-time performance for your business just through work that you can do on your own.”

Final Thoughts

Once those systems are in place and running smoothly, having your finances organized will allow the foresight to know when the right time is to make those big moves. “When you get things organized, it can help you with the perspective of knowing when you can turn up the velocity of your business.” According to Baird, digital solutions can help new business owners get organized, stay organized, and see the big picture regarding their company’s performance.