6 Small Business Finance Myths: Busted
Myths are a part of almost every facet of our lives. From the stories your family told you about monsters to keep you in line to old remedies for colds, the reputation of that “mean” old neighbor, and more, myths are everywhere. Now, thanks to the internet, there are plenty more myths out there. And of course, myths sometimes need to be busted, which led to one of the greatest TV shows: MythBusters.
Just like in life, running a small business comes with its own myths and misconceptions — especially in the area of finance. So let's go all MythBusters on six common financial myths and see how they hold up.
You + math = disaster.
Math is hard. Even if it comes naturally to some of us, it's a difficult subject for others. Don’t worry, though. The type of math you’ll need to do for your business is basic — no trigonometry required. If you can key numbers into a computer, then you can complete your small business accounting tasks.
Just like you can mix Mentos and Diet Coke and it won't cause an explosion, you can mix with math. Most people are better at it than they think — especially since it's just addition and subtraction. You can use a scrap piece of paper or a calculator to do anything you need to do for your business accounting.
I find that, most of the time, small business owners' fears around math are really just anxiety and bad high school memories. But if you've been able to survive on your own as an adult and pay your rent or mortgage, then you can manage your personal finances. And if you can manage your personal finances, you can manage business finances.
The result: myth busted.
You'll remember
This myth is something we as business owners tell ourselves way too often and probably should know better. How often do you rely on your memory and realize later that you forgot? Happens all the time.
You go to the grocery store to pick up garlic and paper towels and it's just two items so you don't make a list. You get to the store you see some green onions by the garlic and then you're walking around and you notice the chips and a Coke and you forget about the paper towels until you park the car at home. Whoops.
What does this have to do with your small business finances? Think about the last time you forgot to pay that invoice or save that receipt. Think about what you spent money on last month that could count as a deduction on your taxes. Can you? Probably not.
Your memory is not a steel trap; things will escape it. That’s why it’s important to avoid putting extra pressure on yourself by trying to remember all the details. Write it down. Save receipts. Track your income and expenses. Get it out of your head. Free up that working memory so that you can move along with your day.
Even better, you'll have the support for your expenses and won't forget any tax deductions.
Myth: busted.
I only have to do this for my taxes
You only have to track income and expenses for taxes, right? Not so much. While you do need to maintain your books so that you can file your taxes, that's not the only use for them. That's like saying phone books are only useful for bulletproofing cars. They aren't and that experiment on MythBusters didn't work.
Your finances are powerful. They can help you be more proactive and catch issues before they become problems. For example, you can:
See what's selling well
See if something is getting returned more often than others
Pay unpaid invoices on time
Catch long-overdue bills before they affect operations
Complete cash flow forecasting
… and more
These are just a few reasons why it's important to keep your books and maintain your small business finances — because you can use them to manage your business. If you're preparing them at year-end just to file your taxes, you're missing out on great information that can help your business grow and succeed throughout the year.
Myth: busted.
Doing my books is not as important as XYZ right now
Let's be very clear: There is a stark difference between what is important and what is urgent. Oftentimes, new business owners will mistake urgency for importance — and this can be a huge detriment to your business if you’re constantly putting off your finances.
If you look at the graph to the right, you'll see that the x-axis is urgency and the y-axis is importance. This is a common project planning diagram because it shows where you, as the business owner, should be prioritizing your time and which tasks you need to do.
For instance, if you're having Mexican food for dinner and you enjoy hot peppers, it's important to make sure you have some milk on hand. It may not be urgent while you're cooking, but if you're sensitive to heat then it's important to have it in the fridge. As we all know from MythBusters, Vaseline (look up other items they tested) won't help. You need milk. It's important.
Your books are important, too. Trust me — and don’t wait until it’s too late. Let me walk you through a scenario: You are at the end of the month and realize you have more bills to pay than you have cash on hand. It's too late to fix it now. However, if you had your books up-to-date and were forecasting cash, this could have been avoided. It's only urgent now because it wasn't seen as important before.
Myth: busted.
It's too complicated
Yes, accounting is complicated. Taxes are complicated. But the basics aren't. Using software like QuickBooks Online makes it all a lot easier.
This myth is similar to the first one, that “Math and I don't mix well.” Don't let your hesitation around the complexity of your finances prevent you from even looking at them. There are tons of videos, trainings, and guides out there, both free and paid, to help you get your small business finances in check.
You only need to know the basics and have a general idea of how you're doing. Then, you can hire somebody if you have more questions. But it starts with you overcoming your fear that it’s beyond your ability. Trust me, you can learn this. You’re a smart cookie! Smarter than you know! ;)
Of course, I won’t lie: After you surpass a certain level, accounting and taxes can be very complicated.
Like when the MythBusters built a Lego ball and tried rolling it down the hill — building the ball was simple. You just take (what seems like) a million Legos and put them together in the rough shape of a ball. But rolling it downhill, the Legos didn't hold together. The pieces broke apart. That part would be a lot more complicated to fix, especially if you can only use Legos.
When you're thinking about your small business finances, you need to understand it at the level of building the Lego ball — the simplest part. From there, an accountant can worry about getting it down the hill. All you need to know is the basics and then likely hire a good accountant.
Myth: busted.
It's expensive to get accounting help
One of the biggest things we’ve heard from potential and current clients is that they put off getting accounting help because they thought it would be too expensive. This isn’t true — especially if you consider the long-term value.
Most accountants and CPAs offer the first meeting for free so you can ask questions, get a feel for them and their personality, and learn how they’d work with you. Once you start working with an accountant, they generally pay for themselves in tax savings and efficiency gains (you don’t have to waste your time doing it when someone else can do it faster). In fact, 75% of QuickBooks Online users say that having an accountant makes their business run better.
A great accountant is going to help you manage your deductions, accounts receivable, and even your processes for tracking income and expenses. Imagine how much less time you’d have to spend doing your books or stressing out over $0.03 difference in your accounts. An accountant can actually make it so much easier — and save you time.
Did you know that 40% of business owners report spending 80+ hours a year on their bookkeeping? You can get that time back with an accountant. It’s like that episode of MythBusters where they talked about MacGyver developing film with household items. Sometimes, it's better to shell out the cash and not risk ruining your business (or your sanity) trying to “DIY it.”
Remember: Small business finances aren’t scary
So there you have it: 6 common financial myths that most new entrepreneurs and small business owners believe. What do I want to leave you with? That your small business finances don’t have to be scary.
The myths and misconceptions we all hold are meant to scare us, but that doesn’t mean they’re true. Just like the MythBusters, I want you to leave no urban legend (or misconception about your finances) untested. Exposure and experimentation are key if you want to have a truly successful and stable business — and it starts by looking at your finances. You can do it.
Here’s a simple spreadsheet to help you track your finances. This spreadsheet is easy for anyone to understand but can easily be transferred over to an accountant if you decide to hire one.
What are you waiting for? Start busting those small business finance myths, starting with “I’m not good at math.”