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Welcome back to “Meet the Bincubators,” a series in which we interview notable professionals who are helping entrepreneurs and businesses to grow and succeed.
Today we speak with Allison Kirchhofer, CPA, MBA and founder of Accounting by Design and the New York Consortium of Cannabis Accountants, about the importance of incorporating accounting principles and practices into every aspect of your small business—and not just at tax time.
Allison, please tell us about your own small business, Accounting by Design? What inspired you to launch it and what kind of work do you do, for what types of businesses?
I started Accounting by Design specifically to work with small business, and I now work with businesses in all industries, including cannabis. My core values are all about entrepreneurship, and specifically the freedom that entrepreneurship offers. And my mission is to support small businesses by designing and implementing the systems they need for a reliable accounting function. In doing so, I hope to help entrepreneurs achieve their business goals and pursue their passions. I’ve also developed a niche working with nonprofits, which are highly regulated and have strict recordkeeping requirements. I will conduct an audit of sorts, and then present them with a business health ‘scorecard’ and recommendations to improve their score. After this assessment, I design and help them to implement new processes and systems.
Some entrepreneurs or smaller businesses may view accounting and bookkeeping as sort of a ‘necessary evil,” which one needs to think about and deal with only, at most, a few times a year, for IRS tax or audit purposes. How would you respond to that?
Contrary to what some might think, accounting is distinct from tax. Of course, I understand and take into account the regulatory tax landscape, especially recently when working with my cannabis clients, but I don’t ‘do’ people’s taxes.
Accounting is not a once a year or few times a year thing. It is—or I would argue it should be—the lifeblood of the business, providing you with the data you need to make accurate and timely business decisions every day.
Retrospective financial statements will allow you to take management action to correct a negative variance between what you expected and planned for, and what actually happened. Or with prospective financials, you can forecast out based on historical data but while also doing a scenario analysis, comparing different possible approaches side by side. Finally, good accounting also requires thinking beyond just the dollars to what’s actually driving those numbers, and developing ways to track and analyze those metrics that are not revenue.
When is a small business “ripe” to work with someone like you?
The best time for a small business to work with me is when they have reached the stage where they are looking to grow and expand but their accounting is holding them back. Perhaps they are thinking of introducing a new product line, bringing on a new partner or investors, investing in a storefront, or taking out a loan—and they want to know if they can afford to do these things.
Or they are looking to hire a controller or a dedicated in-house bookkeeper. Just like some law firms serve as companies outside inhouse counsel, Accounting by Design offers a cost-effective yet sophisticated outsourced alternative to these inhouse bookkeeping and controller functions.
Contrary to what some might think, accounting is distinct from tax.
Do you have any advice for entrepreneurs who are just starting out?
At the outset, you have to have a defined mission. Whenever I am onboarding a client, that’s where we start, and I love to do mission and vision workshops. As a small business owner, you are going to have limited resources and will need to know how to best to allocate them. A rock solid accounting system will help, but those decisions will ultimately be driven by, and need to align with, your underlying mission.
Other suggestions would be to:
Write a business plan that includes your mission, but also discusses management and a model for how you are going to make money selling those, let’s say, cupcakes—including how much they will cost, how many you expect to sell and in what timeframe? A business plan sets defined goals (both short term and long-term strategic) with specific, measurable standards for measuring success and balancing risk v. reward.
Open a separate bank account for your business on day one, even if you haven’t yet formed a separate entity.
Make sure you are aware of all of the state regulations and required permits, licenses and registrations (such as sales tax) you might need.
Get a general liability policy early on.
Consider consulting with a small business legal and financial professionals to make sure that you are fully compliant in all of these areas.
What about tips for implementing an accounting system that’s a step up from the ‘throw everything in the shoebox and think about it at tax time’ approach one may previously have been utilizing?
In terms of an accounting system, something like a QuickBooks Self-Employed account is nice, easy and reasonably priced software that will keep you organized and help you organize your expenses. It may seem daunting if you don’t consider yourself a ‘numbers person,’ but it’s easier than you think, and you’ll feel much better once you take that step and take some control over your financial literacy and destiny.
What are some accounting mistakes that young small businesses make?
One common mistake is assuming that, just because you have a positive balance and have money in the bank, you are operating as a profitable business.
Another mistake is mixing the business and personal, which can seem tempting to do when you are just starting out and especially when it’s just you, but is really not advisable.
What kinds of financial reports should a small business be producing and looking at regularly?
A profit and loss statement, which records revenue and expenses, is something that every business that is serious about growing should be looking at on a regular basis, at least monthly. Cash flow should be looked at weekly, especially when you need to pay vendors.
There is also something known as cash-basis versus accrual basis accounting, which has to do with the timing of your reporting. For example, if you pay for something in January that you use all year, you can either report it all in January, when it actually hits your bottom line (cash basis) or you can spread it out over the entire year (accrual basis). Accrual basis is a more accurate reflection of profitability.
And what if you as a small business owner understand the importance of all good accounting systems and practices, but the thought of undertaking it yourself just leaves you feeling paralyzed?
That’s perfectly fine. Unless your small business actually is accounting or bookkeeping, it isn’t a weakness or a failure not to enjoy it or be good at it! Part of being a successful business owner is recognizing your strengths and learning how to delegate, utilize all available resources, and appropriately ask for help when you need it.
Accounting is not a once a year or few times a year thing. It is—or I would argue it should be—the lifeblood of the business, providing you with the data you need to make accurate and timely business decisions every day.
At the end of each of these interviews, we ask all of our Bincubators to leave us with a few ‘takeaway tips’ for small businesses, if only a recap of some of the most important points they’ve discussed. What are yours?
Remember that accounting is about so much more than taxes.
Have an underlying mission and use it to drive all of your decisions.
Have a plan, as in a formal, written business plan. A small business isn’t something you can just wing and see how it goes.
Keep your personal and business accounts separate.
If you’re still throwing receipts into a shoebox, consider taking that small step into some basic accounting software like QuickBooks Self-Employed.
Remember that money in the bank doesn’t mean you are ‘profitable.’ It’s the data that both allows you to measure profitability and makes it more likely!
Questions or ready to take that next step with your business? You can reach Allison HERE.