Questions and Answers with Paul Stappas

A: Unfortunately, the answer here is no. In my 30 years of working with small businesses, there has not been one that has had accurate books. The primary reasons are:

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First, the business owner feels that this is not a very important part of running the business and assumes it is an accountant's responsibility — which it is not. Second, business owners are primarily focused on sales and totally neglect the importance of accurate books. Third, business owners are not knowledgeable about bookkeeping nor accounting and generally "turn over” the maintenance of their books to a part-time "bookkeeper” — people who normally are not educated in proper bookkeeping systems and procedures.

Q: What should small business owners consider at the beginning of the new year to keep their business healthy?

A: The firm must be profitable. ... Also, a business must invoice its customers promptly and properly monitor its accounts receivable. Assume a business owner's terms are net 30-days, which means the customer should pay the bill within 30 days. If a business owner does not invoice a customer promptly, the customer may actually get 45, 60, 70 days or more before the bill is paid. This then leads to a cash flow problem for the business owner and difficulty in paying the owner's accounts payable.

Q: What advice do you have for business owners whose previous bookkeeping has been substandard? Should they seek out an expert?

A: Managing a business without a proper bookkeeping system is like driving a car with a blindfold on. It cannot be done successfully.

All business owners should get their books properly set up and structured and should seek the services of a true expert. Business owners (usually) do not know bookkeeping or accounting and really cannot properly set up books. Also, setting up books is not the function of an accountant.

Q: Most small businesses usually want to expand their operations over the next year. Any suggestions on how they can successfully take their business to the next level?

A: Many businesses will fail because they grow too fast. The most important factor in managing a business for growth is cash flow, and to properly plan for growth, a firm must first analyze and review its past performance. If this is done correctly, the analysis will determine the proper amount of capital a firm must have in order to sustain its growth. A firm should then prepare a detailed and perpetual five-year plan that is updated each year and should review its performance at least quarterly comparing the performance to the business plan.

It is important to realize that business owners do not plan to fail, they just fail to plan.

Business Writer Sara Ganus