One of my favorite times each week is mentoring entrepreneurs on accounting and financial topics.  I’ve been holding office hours for various groups around Atlanta for almost 10 years (Atlanta Tech Village, ATDC, Startup Chicks, Startup Riot).  I’ve hosted in-person meetings, virtual office hour sessions, and I’ve even found co-working spaces full of entrepreneurs while on vacation to do some mentoring for a few hours (I know, probably not everyone’s idea of a fun vacation activity – but I like it).  

From the many hours spent with hundreds of entrepreneurs, I have heard just about every question in the book. But there are a handful of questions that are consistently asked, no matter what the industry.  Take a look below for some of the top small business financial questions, and how you can answer them. 

• Question: “What’s the best online tool to use for bookkeeping?”

“I like both QuickBooks Online and Xero.  More recently I’ve been steering people toward Xero as they’ve been offer more responsive customer support and have had better transparency into their product roadmap.  You really can’t go wrong with QuickBooks Online either. Most businesses seem to choose Quickbooks, and most US-based CPAs tend to prefer it…but we have seen some issues with certain reports suddenly changing and not running as they did historically.  That being said, it is hard to go wrong with either one. It often comes down to preference.”

• Question: “Someone told me I should be using accrual-based accounting or be on GAAP (Generally Accepted Accounting Principles).  Is that necessary?”

“It all depends on who’s using your financials.  If you are a public company, you are required to follow GAAP (which would include accrual-based accounting) and is a standard for financial statements that are used by the general public.  But most small companies don’t need this. 

Typically, small businesses need financials that can accomplish 2 key goals:

1. Be used to file tax returns (which don’t need to be accrual or GAAP)
2. Provide enough information for the users (owners, management, investors) to make good decisions about the business

I recommend that entrepreneurs first ask whether their financials are used as a critical decision-making tool.  Your answer will help you understand what accounting practices are needed. This could look like accrual basis, cash basis, or some modified basis of accounting.  No matter what you decide, the emphasis should be on usefulness to the actual users of your financials.”

• Questions: “When do I need to make my contractors employees?”

“Sometimes the IRS will determine that for you (see the IRS Independent Contractor vs Employee).  Beware that the IRS doesn’t always make these guidelines crystal clear….shocker, right?  So if you want a detailed overview of what they say and how you need to interpret it, take a look at our latest ebook here: 5 Secrets Successful Entrepreneurs Need to Know about Finances

IRS aside, the answer to this is typically more of a business decision than a tax or legal decision.  Would you get better talent by hiring versus contracting?  What’s more valued by the individual that works for you?  Do you need more flexibility in your work arrangement with this individual? But, there are some financial repercussions to consider when making this decision. If you opt to move a contractor to an employee, beware that it could cost you more (but it doesn’t have to).  Check out a previous blog post I did on the cost aspects of employees and contractors: Employee vs Contractor blog post.”

• Question: “My business lost money last year, so I don’t owe any taxes do I?  Do I need to file a tax return?”

“You probably don’t owe taxes, but you should still have a tax CPA look at it.  And YES, you do need to file a tax return regardless of the fact that you lost money.  The losses could be used to offset future taxes that you owe, so make sure you get all tax returns filed.  Plus, Uncle Sam requires you to file returns for all years that you’re in business.”

• Question: “What payroll system should I use?”

“There are a lot of good ones out there, but right now our team LOVES Gusto (formerly ZenPayroll).  Very cost effective, easy to use, and it plays well with most accounting systems.  Hard to beat that.”

• Question: “What are the most important metrics I should be tracking in my business?”

“This all depends on the type of company that you are and are trying to become.  If you’re a venture-backed software company, most of the focus should be on tracking revenue or deal growth like Net New MRR.  If you’re an online retailer, you should be looking at the buying patterns of customers so metrics like Conversion Rates and Average Basket need to be focused on.  If you’re a services company, productivity of your resources becomes more important, so Utilization Rate and Revenue Per Employee should be monitored more closely.  There’s no universal best metric for all companies, but simple metrics that show revenue growth, cash position, and expense control are frequently used to help track financial performance across most businesses.”

What other questions do you have that I can help with? Drop a few in the comments below or reach out and inquire about my next office hours….I’d be happy to schedule something with you. If you would like more online tips to grow your startup into a tech empire, please check out our free ebook.