It seems like there’s always someone trying to give us advice on everything from dieting to how to clean up wine stains, and one thing everyone always has an opinion about is how you should manage your money. Start a small business, and there’s suddenly twice as much unsolicited financial advice flying your way! With so many voices telling you what you should do to get ahead, it can be hard to sort out the good advice from the bad. Unfortunately, that’s exactly how financial myths spread, and even more unfortunately, there are some myths that are so prevalent that you’ll sometimes hear them from professionals who should know better.
Here are 5 financial myths you’ve probably heard about small businesses, and the truth behind them:
#1. You must spend more to be more successful. “You’ve got to spend money to make money,” right? Who hasn’t heard some variant on this? While this may sometimes be true, spending more isn’t always going to be the key to a positive return on investment. For example, many businesses lose a lot of money to overhead costs because they think they need pricey office space or other facilities that just aren’t justified by their cash flow. Nor is cutting costs always the best way to get ahead. Knowing when and where to spend your money, and when to do without, is a key factor in whether or not your business will grow. And any time possible measure the return on your investment so you are not just spending blindly. A good example is actually tracking new business leads so you know what marketing dollars are producing the best results.
#2. As a business owner, I can get a loan with no money down! There are all kinds of sources out there trying to sell you the “secret” to how you can access free money for your business—whether it is low-interest loans with no money down, or government grants. The fact of the matter is, while there are grants and loans available to small business owners, most lenders are going to require that you have some money of your own “in the game,” or some serious equity you can put down to help cover the loan.
#3. Small businesses fly under the radar of the IRS and are less likely to get audited. Variations of the “I’m not a big enough fish” myth persist all over the business world, and are even propagated by some accounting professionals. The fact is, nobody can guarantee who’s going to be audited and who isn’t so your best financial bet is to always act as if an audit may be coming. Keeping your books in order is good for more than just keeping you safe from the tax man—it also helps ensure that your business is running properly all the time, and keeps you from missing cash flow opportunities that might otherwise have passed you by.
#4. I’m good with money, so I don’t need a budget. Being good with money is one thing, but a budget for your business—like keeping your books in order—does a lot more than just keep you out of trouble. A budget usually represents a detailed analysis of how a company expects to spend money now and in the future. It helps you ensure that capital is not wasted on unessential items or the company does not overpay for resources used in the business. A budget is also used in planning for future business growth and expansion. Using a business or accounting software like Quickbooks can help you automate your budget process and keep track of expenses electronically and there are options to have it set up in a way that both you and your accountant can login and review the financials.
#5. I’m good with numbers so I can do my own bookkeeping. This is one of the most common financial myths business owners face. While it may be true that you can do your own bookkeeping, that doesn’t mean you should. Go back up to myth #1; it’s all about knowing how to use your resources. Even if you were a perfectly good bookkeeper, as the business owner, your time and energy would be better spent ensuring the business is growing and operating at an optimal level, rather than poring over the books. And please understand that bookkeeping done properly requires an in depth understanding of financial statements and cash flow analysis so that you bookkeeping is set up correctly to measure the right financial data in your business.
You want your business to do more than just keep its head above water; you want it to flourish. And in order for it to do that, you must focus on what matters, which means that you may need an extra set of hands when it comes to things like bookkeeping! That’s where the Virtual BeanCounters comes in handy!
Virtual BeanCounters serves business owners and entrepreneurs with remote web and cloud-based finance applications. Let our professional accountants run your daily, weekly, or monthly bookkeeping and accounting, so you can run your business. Contact us by phone at (913) 649-1040 or click here to visit our Contact page.