Running a small business can be challenging. And financial missteps are mismanagement are some of the biggest hurdles that small enterprises face. According to the Bureau of Labor Statistics, one in five small businesses don’t make it past the first year, and only about one-third are still around at year ten.
Adhering to strict accounting best practices is one way to ensure you’re on the right side of those statistics. Good financial management can help prevent the cash flow troubles that cause many business failures. Greg Orcutt, of Orcutt & Company, recently outlined some of the top accounting tips his company has for small businesses. A few of his recommendations include:
1. Understand Inflation
A lot of government money went into the economy over the past several years, increasing the opportunity for inflation. But these factors will impact various industries differently. One of the most important concerns is how to compensate for this in terms of wages and product or service pricing.
The reality is that there is a current labor shortage. If small businesses aren’t willing to pay employees more, they’re likely to lose them. Price increases are a natural consequence of this. But so is widespread spending and business growth.
2. Leverage Automation
More and more businesses are leveraging technology to get things done, and yours should as well. How can you automate the back office of your business? There are significant automation opportunities in terms of employee timekeeping, payroll, and client service to help small businesses save time and money. Just as important, these solutions can deliver a better overall customer and employee experience.
3. Take Advantage of Tax Credits
Many small businesses received tax credits during the pandemic. For example, in 2020, the Employee Retention Credit was created based on how much you paid people and how much your revenue decreased relative to 2019. You would have to amend your payroll tax returns to receive this tax credit, but the amount could be significant.
4. Know Your Exit Strategy
It would be irresponsible, if not unprofitable, to ignore your small business exit strategy. Think about the different scenarios that might require your exit from the business and plan for them. As you’re adding value to the business over the years, it may have a saleable value that you can take advantage of when you are ready to retire or otherwise move on to something else.
5. Give Generously
Not every business owner’s primary purpose is to give back. But perhaps it should be one of them. There is a strong trend in the business world toward “classism,” where too many of the working class are struggling to make ends meet. As a small business, making giving back to workers and the community a priority is something that will produce incredible benefits, financial and otherwise, over the long term.
Orcutt & Company is a small business that serves other small businesses. We help your company remain profitable and achieve its goals by providing comprehensive services from payroll to bookkeeping to tax planning and preparation.
To watch the whole interview with Greg Orcutt, click here.