I think it is fair to say that most small business owners are not trained in accounting, bookkeeping, or financial analysis. Yet, once you own a business, you must be all three.
In the early years of owning my business, my financial plan was simple: The amount of money coming in must be the same as, if not more than, the amount going out. And I was able to manage that in my head or by using an Excel spreadsheet. I justified this by saying the business is too small right now to need financial systems or financial professionals. (Let’s be clear: I should not have taken this approach.) Eventually, the business grew to a size such that mental tracking of my $ in > $ out financial plan became untenable.
A couple of years ago I invested in and set up a couple of SaaS based financial systems (invoicing, timekeeping, payroll, accounting). There wasn’t one system (within an affordable price point) that did everything we needed so we implemented multiple systems and had them “talk” to each other. I patted myself on the back for this brilliant decision, thanked my incredible VP of Operations for figuring it all out and making it work, and moved on. For almost 2 years. We put everything on autopilot and what the things in the system said mostly aligned with what was in my head (because, yep, I kept doing that). When it didn’t, I ignored it because I knew better.
Do you see the mistakes? Have you made them?
In the last quarter of 2021, the consequences of my abhorrence of accounting and bookkeeping dropped me in the financial version of Dante’s Circles of Hell. I spent 4 months untangling the Gordian knot that had become my financials. I share this experience with all small business owners in the hope that I can prevent you from having the same experience. To keep this as practical as possible (and not just for my own catharsis), here are the top 5 lessons I’ve learned:
- Hire professionals that understand your business, business model, pricing strategy, and payment options. At minimum, I encourage you to have a certified public accountant (CPA) and a highly experienced bookkeeper. You must be transparent with these professionals and engage with them regularly. I emphasize the importance of working with professionals that understand your business. I initially worked with a couple of bookkeepers that did not understand consulting, including pricing and payment models, and that led to much frustration on both sides because we kept having the same conversation without making any progress. Eventually, I found the right bookkeeper and it made all the difference.
- Implement financial systems that meet your current needs and can also grow with you. It’s unlikely you will need the most robust systems right out of the gate, but you will probably need more capabilities sooner than you believe you do. (And sometimes that “sooner” will be the result of an unbalanced ledger, an overdrawn account, or a general question of, “Why doesn’t this add up like I think it should?”) Because you cannot anticipate when you’ll need, or be able to afford, the more robust, I advise you to spend the time evaluating and truly understanding the capabilities of the system(s) so you have an idea of how and where to pivot when the time comes.
- Don’t assume the systems will “just work.” If you have multiple systems that feed into an accounting system, just accept that the person responsible for checking and ensuring the data integrity and quality of that integration is you. You cannot assume that the integrations and data transfer will just work. This was a big failure on my part until that fateful day in September when I looked at the accounting system and it told me I had a $900,000 loss on my hands. After much hysterical laughter (because honestly what else could I do), and knowing full well that wasn’t accurate, I started digging in and wow…the things I learned.
- Learn and understand the terminology. Cash basis or accrual basis accounting? Profit and Loss Statement? Balance Sheet? Cash Flow Statement? What? It does matter that you understand these terms. You can’t just rely on the professionals you hire to know. They will need information and direction from you and if you don’t understand what you need to, you won’t be able to give that. I’m not going to define these things because others much more knowledgeable already have.
- Begin at the beginning. And finally, start from a place of understanding and appropriately managing your business finances. Don’t wait until you are “big enough.” Because at that point, it is so much more difficult to start. And, honestly, you are always “big enough” to start.
After the last four months’ of work, I have successfully traveled through the financial version of Dante’s Inferno. I now find myself in accounting Purgatorio, where I am required to sit, wait, and see if all the work I have done amounts to the changes necessary to shore up my financial infrastructure. If it doesn’t, back to the Inferno. But, I am hopeful that it has and, as a result of my continued learning, understanding, and knowledge about my finances, I will eventually find Paradiso.
Michealle Gady, JD, is Founder and President of Atromitos, LLC, a boutique consulting firm headquartered in Wilmington, North Carolina. Atromitos works with a variety of organizations from health payers and technology companies, to community-based organizations and nonprofits but their work reflects a singular mission: creating healthier, more resilient, and more equitable communities. Michealle takes nearly 20 years’ experience in health law and policy, program design and implementation, value-based care, and change management and puts it to work for Atromitos’ partners who are trying to succeed during this time of dramatic transformation within the U.S. healthcare system. Outside of leading the Atromitos team, Michealle serves as a Board Member for both the Cape Fear Literacy Council and A Safe Place and is a member of the American College of Healthcare Executives and American Health Law Association.