Accounting's not really a do-it-yourselfer: Get help

By Jim Hopkins, USA TODAY
© Copyright 2001 USA TODAY, a division of Gannett Co. Inc.

Businesses don't have a future without a bean counter — even if the business isn't selling beans.

That's because bookkeeping and accounting are critical in helping owners track money so their ventures stay afloat.

That's especially true for start-ups, where founders may know everything about their core products or services but little about finances.

Even the smallest ventures need records to avoid trouble with tax collectors. Consider taking an accounting class, experts say. Computer software can speed up record keeping, but it won't take the place of an accountant.

Here's a guide to avoiding bean-counting pitfalls:

Step 1: Learn the basics

• Bookkeeping is the nuts-and-bolts of financial management. It is the recording of expenses, such as rent and payroll, and of income.
• Accounting builds on bookkeeping. Accountants, often working outside the business, double-check and analyze the bookkeeper's numbers. They look for trends, such as expenses rising faster than income, or debt piling up. "It gives you a sense of security," says Bob Breaux, a former accountant and founder of Total Computer Systems in Baton Rouge.

Accountants also help owners comply with tax laws, including how to pay for big capital purchases, such as delivery trucks. They complete quarterly and annual tax returns. And they offer advice on such things as incorporating a business.

QuickBooks and other computer programs make it easy for entrepreneurs to keep records. But they're only as accurate as the numbers plugged in, says John Schnautz, a volunteer with the Service Corps of Retired Executives (SCORE) in Asheville, N.C. He recommends hiring an accountant to review numbers quarterly or annually.

Step 2: Don't think you're exceptional

A common mistake among start-ups is mixing personal and business transactions. One example: paying for office supplies with a personal check.

Keeping separate records makes the IRS happier, helps create a credit history and gives the entrepreneur a sense that the company is a serious enterprise, says Terri Lonier of Working Solo in San Francisco, a business consulting firm that focuses on very small companies.

Susan Kelly, for example, runs her Travel Magic travel business from her home in Basking Ridge, N.J.

She's the only employee. Kelly does the bookkeeping by recording income and expenses using Quicken, the popular financial-management software.

As her business grows — especially if she hires employees — she'll have a track record to build on.

Step 3: What's your background?

Terry Davis, founder of See See Eye, a 21-employee company that designs corporate annual reports, had loads of experience in corporate communications. But she knew little about accounting when she started her Atlanta company 9 years ago. Only a few months after opening, Davis hired an accountant.

She wanted to focus her energies on what drew her into business in the first place — not accounting.

Like Davis, many entrepreneurs are experts in one area. But they know little about other jobs that go into running a business: managing employees, promoting products, getting financing.

Entrepreneurs should consider an accounting class so they get at least a general understanding of it. Willie Jester, founder of BuyCollegeStuff.com in Blacksburg, Va., puts it this way: "You've got to wash dishes before you own the restaurant."

After Davis started her graphics business, she was confused by some of the terminology her accountant threw at her. "My discomfort level increased as the business increased and as the dollar amounts got bigger," she says.

She took Accounting 101 at a local university. Now Davis can ask her accountant smarter questions, and she has come up with tax-saving ideas that she wouldn't have thought of before completing the class.

Step 4: Track milestones

Keeping accurate books and working with an accountant becomes increasingly important at key points in a company's history — such as tax time, when employees are hired or when an owner thinks of selling.

Many ventures get into trouble because they haven't kept track of payroll. Tax collectors lower the boom on businesses that don't withhold and pay employment taxes. "This is one area where the IRS doesn't have any wiggle room," Lonier says.

Tony and Kaye Mellencamp own a fast-food drive-in and a pizza restaurant in Berne, Ind., with a combined 70 employees. They hired an attorney who recommended a local accounting firm so they could keep up with ever-changing tax laws and employee reporting rules.

Kaye Mellencamp taught herself to keep books, handle payroll and pay bills. But the accountant is responsible for more complex tasks, such as preparing employee W-2 forms and the couple's annual tax returns.

Step 5: Hire an accountant

Entrepreneurs should shop for accountants as they shop for any supplier. Ask about their experience with small businesses and with companies in particular industries. Scottie Marable, co-owner of Pinnacle Marketing in Bellevue, Wash. — which sells home-improvement products to retailers and others — prefers working with small accounting firms because she thinks they're more responsive and sometimes cheaper. She pays $2,000 a year to her accountant, which includes tax work and occasional questions asked by phone. "I'm not paying for every 5 or 10 or 15 minutes," she says.

Accounting fees vary by region, but can range from $120 to $175 an hour, says Tom Bargsley, a certified public accountant in Austin, Texas. When he meets a prospective client, Bargsley asks if the company has anyone with financial management experience.

Then he makes sure his firm knows the client's industry. Small companies can't afford to train accountants on their industry, he says. Bargsley spent 10 hours with a new client. They designed an accounting system. He recommended computer software, and they discussed the impact of the business on the owner's personal finances. They'll have monthly meetings for a while, then ease into quarterly meetings.

Kelly, of Travel Magic, may have the best deal. Her husband, a certified public accountant, double-checks her work. "I've been very happy," she says, laughing. "I haven't decided to fire him yet."

Resource checklist

• American Association of Hispanic Certified Public Accountants is on the Web at www.aahcpa.org.
• American Express financial services company offers bookkeeping advice at www10.americanexpress.com/sif/cda/page/0,1641,6108,00.asp.
• American Institute of Certified Public Accountants has information about tax-law changes at http://www.aic pa.org/index.htm.
• Nolo.com, a publisher of legal information, has accounting tips for small-business owners at www.nolo.com/encyclo pedia/sb_ency.html#Subtopic167.
• SCORE, The Service Corps of Retired Executives, offers free advice in face-to-face meetings, or online at www.score.org.