Accounting and Finance Tips

For Emerging Growth and Startup Companies

By The Reznick Group

Entrepreneurship continues to flourish across the United States and abroad. Emerging growth and startup enterprises focus their finances and resources towards product development, proving a concept, and growing revenue. Limited startup capital and resource constraints dictate priorities as to where money should be spent, and rightly so. However, financial accounting and tax matters should not be overlooked, even in the earliest stages of a company’s life cycle.

Reznick Group’s Growth Markets Practice in Tyson’s Corner, Va., has built its reputation working with companies through challenging times, helping to analyze business opportunities and maximize tax savings. Over the years, they’ve seen patterns in what makes some businesses thrive while others struggle and fail to take advantage of opportunities that are presented even when the market is down.

Following are some accounting and finance tips to help ensure business success:

Purchase an off-the-shelf accounting package. Avoid using spreadsheets to track your receipts and expenditures. Create a detailed chart of accounts that includes the types of assets, liabilities, equity, revenue, and expenses that are relevant for your business.

Conduct solid record keeping and banking.

Keep all business expenses/income separate from personal.

Open a business bank account with a start up and venture friendly bank.

Restrict access to checks and bank accounts. Decide who has the authority to sign checks and up to what dollar amount.

Maintain copies and organize (by vendor and/or account) all invoices and/or receipts for any expenses of the business.

Document on the invoice when it was received and how it is ultimately settled (credit card, check, etc.).

If you pay expenses from personal funds, maintain documentation for these and note as to whether it is a capital contribution or whether you expect to get repaid by the Company. If you anticipate repayment, document the terms of the advance or note payable including the interest rate and repayment terms.

Consider implementing an expense report process to reimburse owners or employees for business related expenses.

Code each invoice to a general ledger account.

Reconcile and/or roll forward balance sheet accounts monthly. Bank accounts (cash management)Fixed assetsPrepaid expensesAccounts payable and accrued liabilitiesIntercompany or due from shareholder accountsEquity

Focus on cash management.

Create cash flow projections for planned business activities (suggest 5 year plan, but focus heavily on next 3 to 12 months).

Manage cash balances daily or at least weekly and evaluate your monthly burn rate against your cash flow projections.

Establish payment priorities. Make sure that all necessary bills from critical vendors are paid on time. Taxes, payroll and any withholdings associated with payroll should be remitted timely. Failure to pay these items will cause significant problems for you and other officers personally.

Determine proper operating metrics. Ensure that Operational Revenues and Cost of Sales are clearly segregated from other accounts, so that you can quickly review performance and set meaningful goals.

Create customer and sales metrics.

Sales pipeline (assign probabilities of success and set sales goals)

Sales per employee (creates visibility into value added hiring)

Customer acquisition cost and payback period (creates window into growth potential of your business)

Determine the type of entity structure (C corporation, S corporation or limited liability company) and capitalization of the entity at inception of your business (Founders shares/Common shares and associated vesting). Maintain accurately ownership records going forward.

General Business Considerations

Following are some general business considerations to also help growth and start-up companies:

Apply for a federal identification number with the IRS on the IRS website (www.irs.gov).Consider if the entity will have calendar versus fiscal year end. This decision needs to be made no later than 2 ½ months after the month selected for yearend by filing a tax return or valid extension.Legally register to do business in the state you are located in any state that you do business in. For most states, you can complete registration forms online. This will register you for payroll taxes, sales taxes and personal property taxes.For federal payroll purposes, you will need to apply with the IRS for electronic payments. They no longer accept vouchers/checks.Depending on the number of employees, it would be advisable to work with a payroll company such as ADP or Paychex for your payroll filings. There are many rules and they are always on top of the necessary filings.Investigate multi-state filing and Nexus issues depending on where and how you do business in various states.Consult with your insurance provider concerning workers compensation insurance and other business liability insurancesTax Reporting may be required for the following: Interns and/or employees where lodging is/was provided.Any persons receiving consideration for their services (Form 1099-MISC or W-2s) due by the end of January.Consider first year tax elections. For example, as a C Corporation, an election would need to be made in year one to capitalize Start-Up Costs and Research & Development Costs. An S Corporation election must also be made within a specified time period in order to be effective for the current tax year.

"While these tips may sound simple, many companies are so busy trying to keep their businesses running that they overlook some of the basics," said Mark Hooley of Reznick Group’s Growth Markets Practice. "We see so many businesses make the same mistakes, so we put these tips together to let businesses benefit from what others have learned the hard way." HBM

Reznick Group is a top 20 national accounting, tax and business advisory firm founded in 1977 and headquartered in Bethesda, Maryland. The firm maintains offices nationwide. Reznick Group’s Growth Markets Practice, located in Tyson’s Corner, Va., focuses on helping entrepreneurial, growth-oriented companies address their audit, tax, and business needs. For more information, visit http://www.reznickgroup.com/industries/growth-markets.

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