Accounting by the Numbers: Basic Requirements for SBIR Projects
To secure government funding for Small Business Innovation Research (SBIR) programs, entrepreneurs must have their accounting in order.
Small Business Innovation Research (SBIR) funding requires a solid compliant accounting system, no matter which federal agency awards grants or contracts. Small businesses must deliver Direct and Indirect Costs, as well as timesheets, to receive funding. Contracts such as Firm-Fixed Price (FFP) and Cost-Plus Fixed Fee (CPFF) denote the type of funding companies can receive.
You’ve done it! After weeks, months, or even years of technically challenging work, you’ve scored an award through the Small Business Innovation Research (SBIR) program from one of the 11 participating federal agencies.
But now is not the time to rest on your laurels—instead, it’s time to crunch the numbers and adequately manage your funds.
A fully fleshed-out accounting system ensures you use your SBIR funds correctly, guarding against any sort of government audit. This keeps your small business out of trouble and in the position to receive additional funding down the road.
In this blog, we’ll blueprint all of the SBIR accounting basics you need—no matter which government agency is delivering your well-deserved funds.
Table of Contents
What is an Acceptable SBIR Accounting System?
What’s the Difference Between Direct, Indirect, and Unallowable Expenses?
Who is the Principal Investigator?
What is Federal Acquisition Regulation (FAR) Part 31 in SBIR Accounting?
What are Firm-Fixed Price (FFP) and Cost-Plus Fixed Fee (CPFF) Contracts Under SBIR?
What is the Defense Contracting Audit Agency (DCAA), and How Does it Factor Into SBIR?
What is the Division of Financial Advisory Services (DFAS), and How Does it Relate to SBIR?
What is an Acceptable SBIR Accounting System?
Think of it like this: when you receive funds through an SBIR program, you are entering into a business relationship with the U.S. government, which just so happens to be the largest purchaser of goods and services in the world.
With the sheer volume of business it undertakes, the government boasts a lot of rules—both written and unwritten—in a highly sophisticated system with stiff penalties for any financial transgressions.
You want to be organized, with all of your government billings and annual incurred cost submissions laid out in detailed job cost reports. Forming the foundation of this information is one easy-to-reference document called a Chart of Accounts (COA), an index of the financial accounts in a company’s general ledger.
An all-encompassing COA organizes your business’ financial activity into assets, liabilities, income, and expenses. It creates simple, consistent language across your organization so that you can face any government audit with confidence and have the paperwork to back you up.
What’s the Difference Between Direct, Indirect, and Unallowable Expenses?
At its core, and in the eyes of a government auditor, an acceptable SBIR accounting system demonstrates your ability to segregate the different kinds of expenses listed in your general ledger. These are separated as either Allowable or Unallowable expenses. Breaking it down even further, these expenses (or costs) are organized as:
Let’s define each of these expenses for your SBIR/STTR cost proposal.
Direct Costs
This constitutes the bulk of your government funding and includes the cost of goods and services that are specifically for the benefit of your SBIR project.
Direct costs constitute expenses incurred by performing specific work on a project, contract, or grant objective. These costs, often engineering or research labor-related, are geared specifically to fulfill a contracted goal. Direct costs also can include materials and equipment, subcontractor costs, and travel expenses directly related to the research project.
Indirect Costs
Indirect Costs are supportive expenses that buoy the success of the project and your organization. Generally speaking, Indirect Costs should not exceed 40 percent of the direct costs.
These expenses include (but are not limited to) utilities, administrative labor costs, accounting fees, telephone and internet expenses, rent, employer’s portion of payroll taxes, some legal fees, and indirect labor, which refers to vacation, holiday, and sick time.
Depending on the federal agency, Indirect Costs are often referred to as “Overhead (OH),” “General and Administrative (G&A),” or “Selling, General, and Administrative (SG&A).”
Both Direct Costs and Indirect Costs are considered Allowable under the federal government’s SBIR guidelines. As opposed to …
Unallowable Expenses
There are some expenses the government will absolutely not reimburse, as these components do not bestow any benefits on the federal agencies doling out the funds. Examples of unallowable expenses could include federal income taxes, donations, fines, penalties, and late fees, along with first-class travel and alcohol.
What are Indirect Rates?
Part of the accounting process when dealing with government-funded SBIR programs involves calculating your business’ Indirect Cost Rate. Your Indirect Rate determines the amount of money the government will award your entity for any Indirect Costs incurred during your SBIR project.
Indirect Rates are unique to each small business and startup—this means you should never use another company’s Indirect Rate, and you should also readjust yours frequently.
Who is the Principal Investigator?
All ships need a captain, and in the world of SBIR programs, that individual is known as the Principal Investigator (PI).
Every SBIR proposal must designate a single individual to take on the overall responsibility of the project, including all coordinating and executing efforts. This person must possess the education, work ethic, and project management experience necessary to see the project to the finish line.
No matter the federal agency awarding the funds, the PI must be primarily employed by the small business in question during the award period. The PI cannot be used full-time anywhere else during the SBIR award process.
What is Federal Acquisition Regulation (FAR) Part 31 in SBIR Accounting?
Earlier in this article, we discussed the potential for stiff penalties should your SBIR accounting not be in order. All government contractors—that is, for-profit companies that produce goods and services under contract with the government—need to know exactly which costs are reimbursable and how these costs should be accounted for.
The Federal Acquisition Regulation (FAR) Part 31 (Cost Principles and Procedures) establishes the cost principles and procedures that guide small businesses in SBIR programs and government contractors. This set of protocols works to maintain consistency between the varied accounting methods used by contractors—and all funding applicants must follow these protocols so that federal agencies can swiftly review costs and approve reimbursements of appropriate expenses.
To be considered reimbursable under FAR Part 31, costs have to meet a set of criteria:
- Costs must be reasonable. The PI and their team need to ensure that materials and equipment are purchased at a reasonable price.
- Funds must be appropriately allocated. Expenses are only reimbursable if you can prove that the cost is necessary and beneficial to the project.
- Costs must be recorded and submitted. Expenses should be duly noted according to Cost Accounting Standards (CAS), a set of 19 government-authored standards.
- Expenses should adhere to the terms of the contract. Costs that are expressly unallowable should be left out, with no exceptions. However, some questionable expenses are considered circumstantial and are subject to review.
What are Firm-Fixed Price (FFP) and Cost-Plus Fixed Fee (CPFF) Contracts Under SBIR?
There are two primary forms of contracts used in SBIR programs: Firm-Fixed Price (FFP) and Cost-Plus Fixed Fee (CPFF). These types of contracts are awarded by the Department of Defense and other agencies that focus on construction, as opposed to other agencies like the National Science Foundation, which issues SBIR STTR awards in the form of grants.
The differences between FFP and CPFF contracts boil down to when they apply (Phase I or Phase II) and how they define the reimbursement process.
Firm-Fixed Price (FFP)
For the most part, Phase I contracts are FFP. Under this contract, the government and the contractor (the small business) agree to a fixed price that cannot be adjusted no matter what costs befall the project. With FFP contracts, the contractor bears all the cost risk and must deliver the product even if it costs more than the amount of the contract. This means that all deliverables must be precisely accounted for.
Cost-Plus Fixed Fee (CPFF)
Phase II contracts can be either FFP or CPFF, a cost-reimbursement contract. Under a CPFF contract, the federal agency reimburses the contractor for allowable costs, along with a fee. As such, a CPFF sees the government bear the bulk of the risk. However, the contractor must make satisfactory progress and deliver the end product described in the contract to earn the fee.
There’s generally more government oversight at the completion of a CPFF contract, and an “incurred cost” audit is required before the fees are paid. And to be paid, the contractor must submit an approved invoice. This makes a CPFF contract more complex to administer while attaching more cost regulations for contractors to sort through. Another reason why a competent accounting system is a must!
What is the Defense Contracting Audit Agency (DCAA), and How Does it Factor Into SBIR?
When a federal agency considers awarding you Phase II funding to continue your research, your company will be subject to an auditing process. Many of 11 federal agencies that dole out SBIR awards—except for the National Institutes of Health (NIH) and the National Science Foundation (NSF)—rely on the Defense Contract Auditing Agency (DCAA) to perform this auditing task.
The DCAA includes two mandatory components in its evaluation:
- An assessment of your company’s financial stability.
- An evaluation of the adequacy of your accounting system.
There are also two optional components that the DCAA might dig into:
- An evaluation of the indirect rates you propose to charge on a Phase II project.
- A confirmation that you are up-to-date on your payroll tax deposits.
The DCAA offers a guide, Information for Contractors, to give small businesses a window into how these “pre-award surveys” are conducted. Though not specific to SBIR, this guide is helpful to any contractor with a pending government audit.
In terms of your accounting system, there are 10 requirements that you must meet to satisfy DCAA. Those requirements are:
- Proper segregation of direct costs from indirect costs.
- Identification & accumulation of direct costs by contract.
- Logical & consistent method for allocating indirect costs.
- Accumulation of costs under general ledger control.
- A timekeeping system.
- A labor distribution system charging direct and indirect labor appropriately.
- Interim determination of costs charged to a contract.
- Exclusion of unallowable costs.
- Identification of cost by contract line item.
- Segregation of pre-production from production costs.
The one accounting requirement that seems to cause the most heartache among small businesses is #5—the dreaded timekeeping system. So let’s dig into that one a bit more.
SBIR Agencies and Timesheets
There are horror stories about small businesses being unaware of the timesheet requirement until after the government auditor shows up and asks to evaluate indirect rate charges. Imagine the panic and utter despair of that situation!
Small businesses that receive federal contracts and grants must keep timesheets, with no exceptions. Without timesheets as part of your accounting arsenal, you have no way to prove how much of your employees’ time was spent writing proposals, preparing and updating commercialization plans, and more. And guess what? Your employees’ time is the most significant single indirect cost your small business will incur during the SBIR program.
And timesheets are not only required by agencies such as the Department of Defense (DoD), which issues awards as contracts. Even agencies that award funds in the form of grants, like the NIH and NSF, expect timecards as part of your accounting practices.
Check out this example of an NIH timesheet to get an idea of what is expected of you and your team as you track your indirect costs.
What is the Division of Financial Advisory Services (DFAS), and How Does it Relate to SBIR?
The Division of Financial Advisory Services (DFAS) is related to the NIH. Responsible for negotiating and establishing indirect cost rates, DFAS works exclusively with small businesses that receive federal awards from the Department of Health and Human Services (HHS), which deploys the NIH.
More specifically, the DFAS Indirect Cost Branch is responsible for calculating the federal awards from the HHS. The Indirect Cost Branch works with small businesses to zero in on reimbursement rates for contracts and grants, ensuring these figures are based on actual costs and are adjusted according to standards and rules as they are applied to SBIR programs.
Working With Your SBIR Accountant and CPA
When word comes down that you’re about to receive an SBIR grant or contract, the excitement can overwhelm even the most seasoned innovative minds. After all, this is what you’ve been working toward for months, if not years! But that excitement is tempered when the government auditors come calling.
There’s one surefire way to prove your SBIR accounting system and ensure that you and your team are entirely audit-ready—partner with an accounting firm with extensive experience in the world of SBIR programs and government contracts and grants.
Most accounting firms and CPAs are general practitioners graced with a wealth of tax knowledge. However, most do not specialize in government award accounting.
This means they aren’t well-versed in FAR Part 31 and have never represented a client during a pre-award audit with the DCAA or DFAS. They might also not understand the nuances of different indirect rate structures, nor do they know how to approach a government official when a structural error in an indirect rate is discovered.
Team 80 specializes in government contract and grant accounting. We have represented numerous companies during DCAA, and DFAS audits and know what to look for in negotiating incurred cost rate agreements. And yes, we know what to do when it comes to those ever-present SBIR project timesheets.
Our systems, deployed and managed by government grant and contract experts, take the accounting specifics off of your desk. This empowers you to focus on the project and increases your chances of securing government funding for your innovative idea.
How Do I Clean Up My Accounting Records?
We get it. Accounting and bookkeeping are complicated.
Small business owners come to us all the time with questions like:
“How do I clean up old QuickBooks transactions,” “How do small businesses maintain their accounts?”, “Why is bookkeeping so hard?”
Your time running a business isn’t best spent reconciling transactions or cleaning up balance sheets. You simply don’t have the time to focus your energy on accounting, and maybe because of it, your financial records have gotten a little chaotic and messy.
It happens. But should it KEEP happening? No. Unchecked messes can devastate a small business. Having impeccably clean books is everything.
For your business to survive and thrive, you MUST have clean account records and books. You should be able to access your business finances at the drop of a hat if need be.
Let’s take a look at some things you can do to clean up your chaotic bookkeeping.
Table of contents:
- Are your personal and business accounts separate?
- My software receives transactions from my bank feed; why are none of them reconciled?
- How do I clean up old transactions in my accounting software?
- Is the balance sheet you manually keep track of missing entries?
Are your personal and business accounts separate?
As mentioned in our previous blog, entrepreneurs shouldn’t blend their personal and business accounts.
Every small business needs to have its own business account, period. Several banks offer low to no-fee, interest-earning accounts for small businesses, and almost all of these accounts have ATM accessibility and online/mobile banking tools.
“It will save you lots of headaches down the road if you keep your business and personal banking transactions in separate accounts. You should run all business transactions through a business bank account or credit card. Personal expenses should be kept separate.” — Sarah Sinicki, Director of Business Development, Team 80 Small Business Accounting and Bookkeeping
My software receives transactions from my bank feed; why are none of them reconciled?
You understand the importance of reconciliations. You know that when you don’t conduct regular bank reconciliations, you lose insight into how well your business is doing. You integrated your bank feed with your accounting software for this reason.
But what if your accounting system shows you’ve reconciled nothing? There’s a good chance you thought integrating your bank feed was all you had to do.
Unfortunately, that isn’t the case.
Importing transactions is only part of the process. No accounting software will do all the work for you. You still need to review, enter, and code each transaction into the correct general ledger account every time.
Compare transactions in your software with the same ones on your bank statements. Once you have reviewed everything, the difference between the ending balance in your accounting system and your bank statement should be $0.00.
How do I clean up old transactions in my accounting software?
Keeping your financial records clean is crucial for financial health visibility.
Purging old transactions by either deleting or voiding them out is a perfect way to unclutter and refine your reporting accuracy.
Doing so will ensure you have a true sense of where you stand when it comes to your finances.
“If you are going to clean these transactions yourself, you need to make sure all transactions from your bank and credit cards are entered and coded in your accounting system correctly. The bank balance on your statement should tie to your books each month. If not, you will need to investigate and find out where the discrepancy is coming from.” — Sarah Sinicki
Is the balance sheet you manually keep track of missing entries?
You’re busy running your business. And you might forget to track an expense.
Errors happen – it’s human nature. But, when transactions fall through the cracks they can be hard to detect later. If you use an accounting spreadsheet, the best thing you could do is set it up as a check register, where you can enter each transaction and ensure it mirrors the bank statement like you would with your personal bank account.
As a quick fix, this method will suffice. In the long run, it won’t serve you well. For your business to grow, you need to invest in an accounting package and maybe consider hiring accounting professionals for help.
There is a lot at stake. If you make a mistake, you could be setting yourself up for incorrect tax filings or penalties.
If you don’t have the time, and you know you’re out of your element, it’s time to outsource your accounting to a trusted team.
We would love to bear your accounting burden! Get in touch with us today!
Sarah Sinicki
Partner at Team 80 LLC
Sarah Sinicki is a Partner and Director of Business Development with Team 80 in Colorado where she is able to apply her 20 years of experience to tailor an accounting solution for a business owner no matter what industry they might be in.
Everything You Need to Know About DCAA Compliance and Approved Government Contract Accounting
DCAA Compliant Accounting for Government Contractors
Your success depends on meeting DCAA (Defense Contract Audit Agency) compliance regulations when working with the government.
Government contracting can be a challenge; when you’ve cleared one hurdle, another one awaits, like finding a government-approved accounting system.
If you want to win defense contracts, you’ll need a DCAA-compliant financial system. Moreover, you’ll learn that responding to proposals without a DCAA compliant accounting system is impossible in some cases.
At Team 80, we ensure small business owners entering the SBIR/STTR program have an accounting system compliant with Federal Acquisition Regulation (FAR) and Defense Contract Auditing Agency (DCAA). If you’re one of those small business owners, this blog is for you.
“Accounting is hard enough without the government as your “partner.” That’s why government contractors should look for an accounting system that already strikes the right balance between ease of use and powerful capabilities.”
– Sarah Sinicki, Director of Business Development, Team 80
Compare our Prices and Expertise Today.
When creating and pitching a dynamic SBIR proposal, it’s easy to overlook crucial details, like proving you can accurately (and quickly) show how you used their funds. The federal agency you’re working with needs to understand you have an approved system in place before they give you an award. They also want to feel confident you won’t misuse taxpayer dollars or engage in billing fraud (inadvertently or by design).
So, here’s what you’ll need to do: find a DCAA-compliant accounting system.
The government wants you to have an approved accounting system before giving you an SBIR or STTR contract. You also must comply with Federal Acquisition Regulations (FAR). You should familiarize yourself with FAR’s guidebook to learn more about what you can do to ensure everything runs smoothly before the DCAA shows up.
What is the DCAA?
The Defense Contract Audit Agency is a federal agency under the Department of Defense (DoD); they’re “stewards of taxpayer dollars.” The DCAA delivers high-quality contract audits and services to ensure taxpayers and the military get what they pay for at a reasonable price. Their mission has remained the same since 1965.
In 2019, the DCAA examined nearly $365 billion in DoD contractor costs. Their audits saved taxpayers roughly $3.7 billion. The savings go back into the DoD’s pockets for essential military operations, or the government returns the excess cash to the Treasury.
The DCAA is primarily responsible for DoD contracts. However, they’re also often brought in by other federal agencies (like Nasa and the Department of Energy) for contract audits and financial services.
You’ll have the DCAA knocking on your door if a government agency, the Defense Contract Management Agency (DCMA), for example, requests the DCAAs help with an audit.
If you’re not DCAA-compliant, you’ll be answering their call. And that’s not something you want.
What is DCAA compliance?
When you’re DCAA compliant, you’re following their rules, recommendations, and best practices. If that sounds simple, it’s because it is! So stay on top of your record keeping, and use DCAA compliant accounting systems that’ll pass their audits, and you’re off to the races.
Here are some tips to help you stay DCAA compliant:
- Establish and document your policies
- Use a DCAA compliant system capable of tracking multiple cost categories separately
- Make sure your timekeeping records and cost-accounting are fully integrated
- Keep detailed records, and make sure your documents are easily accessible for the eventual audit
*You should note that the DCAA won’t give you a certificate of compliance.
What is the DCAA Pre-Award Survey?
The DCAA conducts pre-award surveys when they’re about to award your small business with a government contract. You shouldn’t confuse the survey with an audit. The survey is simple; it’s an evaluation of your accounting system, and it validates your ability to carry out the government contract tasks.
If you meet the DCAA’s accounting system requirements, and you’re ready to see the contract through financially, you’ll pass. In order to give yourself the best chance of securing a contract, we suggest that you use the pre-award accounting system adequacy checklist. It’ll help you stay compliant and ready for a DCAA
What happens during a DCAA audit?
You shouldn’t fear a DCAA audit, though you should prepare yourself for that eventuality.
During an audit, the DCAA will determine if your accounting system adheres to Generally Accepted Accounting Principles (GAAP). They’ll check to ensure you’re recording expenses when you provide a service. Small businesses usually have to overhaul their accounting and record-keeping procedures to comply with GAAP. (If we’ve already sold you on avoiding that headache, let’s talk about how we can help.)
According to the DCAA’s Form 1408 checklist, your accounting system must:
- Properly segregate direct costs from indirect costs.
- Correctly identify and accumulate direct costs by contract.
- Have a logical and consistent method for allocating indirect costs to immediate and final objectives (a contract is considered a final cost objective).
- Be able to accumulate the costs under a general ledger.
- Have a timekeeping system that identifies employee’s labor by intermediate or final cost objectives.
- Have a labor distribution system that charges direct and indirect labor to the appropriate cost objectives.
- Determine costs charged to a contract through regular posting of books of account at least monthly.
- Correctly identify, exclude, track allowable costs based on FAR 31 unallowable expenses.
- Identify costs by contract line item (CLIN).
- Segregate preproduction costs from production costs.
You’ll probably make it through an audit if your accounting system checks every box on this list. And if you’re feeling uneasy, it’s okay; the DCAA wants you to succeed, so they provide audit process overviews and let you see the checklists auditors use for assessments.
Is there a DCAA Compliant Accounting Software?
Here’s a mind-bending truth. There’s no DCAA approved software, but there is software optimized for DCAA compliance. DCAA compliant software can include any commercial accounting package capable of tracking job costs. For example, Quickbooks provides accurate data, process flows, and reports that you’ll find helpful during an audit.
Still, your comprehensive, government approved accounting system is only one-half of the battle. Your accounting package is only as reliable as your information. In addition, you must establish policies and procedures for routine finance documentation.
And compliance is eternal. Once your software is compliant, it must remain compliant. With the help of a qualified accounting team (like Team 80), you can feel confident that you meet and exceed regulatory requirements.
You should let Team 80 manage your government contract accounting needs. Here’s why:
You didn’t start your small business to manage tedious accounting tasks. Instead, we want to help you stay focused on researching and developing your SBIR program passion project. That’s why we offer affordable, turn-key accounting services – so you can stay focused on what matters most to your business.
“Federal accounting regulations are complex and ever-changing, both in their wording and how government auditors choose to interpret and enforce them. Team 80 can help you prosper in this challenging environment. When you’re serious about doing business with the federal government, you need an equally serious accounting partner.” – Sarah Sinicki, Director of Business Development, Team 80
We’ve been doing this for more than 20 years. We’ll ensure your accounting system is DCAA compliant – today and into the future.
Ben Smith
Chief Accounting Officer at Team 80 LLC
Ben Smith is a Chief Accounting Officer at Team 80 where he is able to apply his accounting experience and passion helping small business owners make their companies successful in the SBIR industry.
8 Easy Accounting Tips to Help Small Businesses Maintain Their Books
Accounting is the language of business. Understanding that language is an essential part of keeping your small business alive.
Being a small business owner isn’t easy. And neither is being an unofficial accountant.
With the hectic day-to-day operations of running your business, how can you possibly make time to learn bookkeeping? The idea of sifting through endless stacks of financial documents and ledgers sounds overwhelming.
Still, you understand the importance of not letting your accounting fall behind. Because maintaining accurate financial records is vital to the health of your business.
That’s why you’re asking Google questions like, “how do small businesses maintain accounts?”
These simple accounting tips will help you and your labor of love succeed!
8 Easy Small Business Accounting Tips
- Invest in an accounting system
- Keep business and personal expenses separate
- Don’t wait until the end of the year to do your accounting.
- Meet with your CPA throughout the year.
- Look at your financial statements monthly.
- You need to understand your cash flow.
- Create a budget.
- You should hire a professional.
1. Invest in an Accounting System 
Small business owners with no accounting experience need a reliable accounting system because that system is often the difference between success and failure.
Many affordable options will simplify data and organize your financial information to track expenses, income, and other activities easily. Xero, Quickbooks, Intuit, and Wave Financial, are just a few of them. You can even link your bank and credit card accounts directly to the software.
An accounting system makes your life easier and helps you to focus on business growth.
2. Keep Business and Personal Expenses Separate
New entrepreneurs often dip into their personal bank accounts in the early stages of business development. The practice of intermingling expenses can be problematic for many reasons.
Here are some of those reasons:
- Personal and legal liability
- Tax implications
- Audit trail issues
- Bookkeeping problems
You can avoid these issues by opening a business bank account and establishing separate credit card accounts. Keeping personal and business accounts separate also improves your business credit score, helping you secure better business loans and reduce business insurance costs.
“Run all business expenses through the business, and pay all personal expenses from a personal account. Trust me, your CPA will thank you at the end of the year. You don’t want to spend lots of extra money untangling combined finances.” – Sarah Sinicki, Director of Business Development, Team 80 Small Business Accounting and Bookkeeping
3. Don’t Wait Until the End of the Year to do Your Accounting
Do you remember January’s expenses when you wrap up accounting in December? You probably don’t.
Business owners will too often make the mistake of waiting until the last minute to start thinking about their accounting. And they usually suffer from financial troubles as a result because waiting can cause significant issues.
You can handle most finances monthly.
Taking control of your finances and keeping bank reconciliations up-to-date monthly saves you from frantically scrambling at year’s end. We suggest you set a schedule so that you are touching financials monthly.
Well-managed finances close the door to preventable errors.
4. Meet with your CPA throughout the year.
You should meet with your CPA to review your books no less than twice yearly to ensure nothing falls through the cracks.
Meeting at least twice a year also helps your CPA understand your business. The person handling your finances should know your company inside and out.
Be proactive. If you meet with your CPA at least twice a year, they’ll have time to review your finances, uncover missed details, and devise effective strategies that you can implement to help your business before the deadline.
Don’t wait until tax time; it could already be too late.
5. Look at your financial statements monthly.
We can’t overstate the importance of understanding the real-time financial health of your business.
Understanding your financial statements helps you discover where your business stands today and where it’s headed. It’s also an excellent way to learn if operations are running smoothly.
It’s also essential to always understand your profit margins and net income. Generating a monthly profit and loss report and reviewing revenue and expenses is a best practice we advise.
Never neglect your balance sheet since it shows your cash balance, outstanding accounts receivable, and all other assets and liabilities. Your balance sheet is a current snapshot of your business’s financial health; use it, love it.
When you stay on top of your financial statements, you’re empowered to make timely strategic business decisions. These decisions can help business thrive today and into the future.
6. You need to understand your cash flow.
Small business owners that don’t track cash flow are on the fast path to becoming former small business owners.
You must understand and optimize your cash flow because cash flow measures the real-time movement of dollars in and out of your business.
Your cash flow is positive when there’s enough money in your business account to pay bills. If cash is rapidly dwindling, you could have a severe problem.
Cash flow visibility helps you grow operations strategically. You can start by monitoring and documenting your incoming and outgoing funds using your accounting system.
You should also prepare a cash flow projection looking two to three months out to avoid surprises. If there are cash flow constraints, it’s time to leverage a business line of credit.
7. Create a budget.
You can use your financial statement and cash flow information to create a budget aligned with your business’s economic trajectory.
Every entrepreneur should develop a budget. It’s an essential tool for financial tracking, especially for smaller businesses with limited funds that can benefit from operating within their means. A realistic budget can also help you understand the appropriate actions to take when problems arise.
Budgets help you anticipate future needs like repairs, expansions, and improvements without relying on credit. Accurate budget forecasting can also help you plan for staff hires and product and service investments and establish earnings and sales goals.
“Even a poorly executed budget plan is better than no plan at all. Take some time and plan out what you think your revenue and expenses for the upcoming year will be. Then compare the budget to the actuals monthly. The variances in these numbers can give you some great insight.” – Sarah Sinicki, Team 80
8. You should hire a professional.
It is okay to admit when you’re in over your head – it’s also understandable. You didn’t launch a small business to become a full-time accountant. 
You started your business because you’re passionate about your offering, and you want to provide customers with exceptional products and services.
You should focus on growing your business and serving your customers. And that’s not possible when you’re mired in book balancing, payroll management, financial forecasting, and tracking your accounts payable and receivable.
We want to do this work for you. Get in touch with us today!
Sarah Sinicki
Partner at Team 80 LLC
Sarah Sinicki is a Partner and Director of Business Development with Team 80 in Colorado where she is able to apply her 20 years of experience to tailor an accounting solution for a business owner no matter what industry they might be in.
15 Signs You Have a Bad Bookkeeper
You took an enormous risk starting a small business. Are you letting a lousy bookkeeper put it in jeopardy?
As a small business owner, the fear of failure is always in the back of your mind. When combined with the stress of financial management, that fear can turn into pure dread.
You’re an expert in your chosen field—you shouldn’t have to be an expert at balancing books, payroll, and forecasting, too.
And since you’re on top of things and aware, you’ve wisely outsourced your bookkeeping.
But have you hired a skilled bookkeeper?
The last thing you need is an outsourced accountant tanking your trust and dreams.
We’ve pulled together a list of red flags and warning signs to help you determine what kind of bookkeeper you’ve hired.
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Your Bookkeeper is Constantly Out of Reach
As a small business owner, you need answers to finance-specific questions. And you need those answers fast. When your bookkeeper doesn’t return your phone calls or emails, it’s a significant problem.
Trust is essential when it comes to outsourced bookkeeping.
If you notice long stretches between replies from your bookkeeper, it’s time to ask why. There could be many reasons for the communication lapse. The bookkeeper might be overwhelmed or lacking communication skills. Or, it could be more serious.
Maybe they don’t care?
You need to set ground rules (if you haven’t already) and communicate your expectations around acceptable communication timelines
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They’re Constantly Behind on the Books
It’s easy to lose track of finances when your bookkeeper is continuously behind on the books. You might start making fatal errors like spending more than the business earns.
If your books are behind, then your business is behind. Growth is almost impossible when you’re regularly playing catch-up.
You must set deadlines to ensure that your bookkeeper is on track if you want your small business to thrive.
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Your Bookkeeper is Panicked
Tax filing might give you a panic attack, but it should be second nature to your bookkeeper. The accountant should remain calm, relaxed, and collected under every circumstance.
If managing tax documents, payroll information, and quarterly payments to prepare for tax prep causes your bookkeeper to become frazzled, you have a severe problem.
A panicked accountant is a business threat.
Their panic could indicate inexperience. And the last thing you want is a bookkeeper who is in over their head
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They Never Approach You With Ideas
You’re so swamped with everyday business operations that you might be neglecting growth opportunities.
Your bookkeeper should have a deep understanding of your day-to-day financials. They should also provide you with helpful feedback. Should you lower costs or increase revenue? A great bookkeeper will have the answers.
If they aren’t coming to you with ideas and solutions to help push your company to the next level, ask them why.
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They Don’t Understand the Basic Terminology
This one seems like a no-brainer, but many bookkeepers don’t have the slightest clue when it comes to basic accounting terminology.
It’s not your responsibility to explain what cash vs. accrual means or the definition of accounts receivable.
If your accountant doesn’t know the term “reconciliations,” run away!
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They Don’t Understand the Reports
Your books are crucial for recording financial transactions and activities like sales, purchases, earnings, payments, etc. Recorded data allows you to determine monthly/annual revenue and anticipate and calculate payroll and tax payments.
If your bookkeeper doesn’t understand your reports, accounts can be overdrawn, and you might find yourself in hot water with the IRS.
Nobody wants an IRS audit.
Failing to keep-up with numbers leaves you without a grasp of the money coming in and out of your business.
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They Constantly Pass Blame or Make Excuses
It can drive you crazy. Your outsourced bookkeeper dropped the ball, and rather than getting a simple explanation, they make excuses and shift responsibility.
Managing failure and disappointment is natural. But, there is a thin line between explanation and excuse, and the latter only delays the solution and blocks progress.
As a business owner, you require a bookkeeper who can take accountability and execute a proper response to any mistake. A competent bookkeeper will be able to address an error and take control in making it correct.
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They Don’t Understand Reconciliation
Proper bank statement reconciliation is crucial for every small business.
When your numbers are off and discrepancies pop-up, your bookkeeper probably isn’t performing reconciliations regularly – or at all.
Critical errors could go undetected if nobody verifies that your balance sheet transactions correspond with general ledger transactions.
Improper reconciliation makes you susceptible to fraud, costly bank errors, and unauthorized withdrawals.
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Your Accountant Doesn’t Ask Questions
Your outsourced bookkeeper must understand how your company operates to identify cost-cutting opportunities. They also need to ask questions to have this understanding.
If your bookkeeper is afraid to ask questions out of the fear of appearing unqualified or inexperienced, they’re letting ego get in the way of good business tactics.
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They’re Unable To Provide Answers To Their Work
You’ve noticed bounced checks. And this morning, you saw old transactions in your Quickbooks undeposited funds windows! What is going on?
Your accounts probably aren’t managed regularly or adequately reconciled by your outsourced bookkeeper.
When you ask your bookkeeper what’s happening, they can’t provide answers or insight.
Minor mistakes are inevitable, but a good bookkeeper is willing to go over routine tasks with you to establish what went wrong.
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They Don’t Let You See the Books or Give You Access to Your Accounting System
Is your bookkeeper holding your records hostage? Is looking at your data like pulling teeth?
With today’s cloud-based accounting software, there’s no reason you shouldn’t have complete data access.
Put your foot down. Tell your accountant you want shared-access to the books. If they are reluctant to share that access with you, it’s time to work with someone who will.
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They Don’t Understand Balance Sheets
The business has gone up, but your cash balance doesn’t reflect the increases. Where is that cash? The answer should be on your balance sheet.
Not everyone knows what to look for on their balance sheet or profit and loss statement. Still, an experienced bookkeeper will analyze the assets, liabilities, and equities data.
Your balance sheet is a snapshot of your business’ financial health. If you have any trouble identifying cash-flow problems, it might be time to seek another bookkeeper.
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Coding Inconsistencies
Incorrect and inconsistent coding can take hours to rectify and cost your company thousands; it’s usually an honest mistake.
But entering incorrect accounting codes is a significant problem. Coding helps classify, record, and group all your transactions.
Wrong accounting codes can cause you to miss out on tax savings. Incorrect coding might also impact tax claims. In extreme circumstances, it can indicate your bookkeeper is stealing money. Either way, misclassifications can land you in hot water.
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Your Accountant Is Patronizing
The person handling your finances must be the expert. But do you need that experience and expertise delivered with condescension?
Nobody likes being talked down to – the behavior isn’t conducive to a productive workplace. You wouldn’t let your staff treat you poorly, so why let your bookkeeper get away with it?
Be open with your bookkeeper. Let them know the terms with which you are comfortable speaking. You shouldn’t feel belittled because you aren’t up on the latest financial jargon.
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Your Bookkeeper is Controlling
Have you noticed that your bookkeeper wants complete, unsupervised control of your business’ financial management? If so, it’s time to start investigating why.
As we’ve already mentioned, trust is critical. When a bookkeeper wants to take control of everything inexplicably, your confidence can be a little shaken.
Handing over unsupervised access to your bookkeeper is like running your company blind. Some bookkeepers wind up stealing from a business because the business owners made it easy.
Your bookkeeper should be a business partner. You can avoid theft and mismanagement through collaboration.
If you’re feeling uncertain about your bookkeeper, it may already be too late!
Is it time to find a new accounting team? Team 80 offers full transparency, and we might save you money. Call us today!
Sarah Sinicki
Partner at Team 80 LLC
LinkedIn
Sarah Sinicki is a Partner and Director of Business Development with Team 80 in Colorado where she is able to apply her 20 years of experience to tailor an accounting solution for a business owner no matter what industry they might be in.