4.2 Accounting

Okay, now we wanna talk a little bit about accounting, right? You’ve got your incorporation, you’ve got your bank, now you get to start accounting. Oh, you’re not an accountant. Got you MBA, but you slept through that class, didn’t you? Right? Don’t worry about it, okay? First of all, in most countries out there have good accounting software available to the start up businesses at low or no cost. Okay? So you can go out there, choose a software that you’re going to use, and that software does a lot of the accounting for you. Now, having said that, if you are not comfortable with accounting, if you’re not comfortable with setting up your chart of accounts. You probably want to hire someone to do this for you. I would advise against, when you get one of these software programs, and it says, would you like us to set up the chart of accounts for you? Right? Just indicate what kind of business you’re in, and we can do this for you. Don’t do that, okay? It’s gonna, down the road, it’s gonna, it’s gonna make a nightmare for you. In the end, they try to, to say that, oh yeah, we’ve got special charts of accounts for this business, that business. In my experience, it’s never worked. I end up having to, to rewrite half of the, the chart of accounts, and delete the other half. Set them up. Go ahead and set up the accounts as you go. Or, hire an accountant or a bookkeeper just to set up your basic chart of accounts for you in a way that’s going to make sense to you. So, that you can enter things in a consistent and logical manner each time. Ignorance is not an option. If you’re an entrepreneur, you’re an accountant. Okay? If you’re an entrepreneur, you’re an accountant. If you’re not an accountant today, you’re going to become one soon, okay? Ignorance is not an option. You don’t just hire an accountant, and let them do your books. If you have to hire an accountant, you let them do your accounting, and explain to you what they’re doing along each step of the way, so that you learn as you go. You know, you wouldn’t hire someone to manage your shop, and then walk away, and let them do it without any oversight. Why do so many entrepreneurs hire an accountant, and let them account without oversight? It’s because they feel they don’t know anything about accounting. Not an option, inform yourself, educate yourself, make them explain to you what they’re doing, and why they’re doing it, this is vitally important. It’s worth your time and money to get your accounting set up properly in the beginning, and unfortunately the accountants don’t always give the best advice. I was with a client recently. And, I looked at their books, and I said, you guys are doing cash accounting. He said, yeah. I said, well, why aren’t you doing accrual accounting? He said, oh, our accountant said we should do cash accounting for now. And, I looked at his books. I looked at his company. I looked at everything, and I, I mean, I don’t want to be negative. But unfortunately, the only reason I can possibly think that it’s better for them to do their cash accounting now, is that the accountant is going to charge the same amount of money. And he, it takes him less work to do the cash counting. And second, in the future, the, the law is going to obligate him to switch to accrual accounting. When he reaches a certain revenue size of his firm, the law is going to say no, now you have to be accrual accounting. And, whose going to charge him to do that switch over? Is the accountant, and those are, those are long processes, and rather expensive. So, if he had just incorporated with accrual accounting from the beginning, the job is done. He wouldn’t have this upcoming task in the future. And, one of the reasons why it came up is because he’s almost at that limit, the, the, that future is upon him. Okay? So worth your time and money to set up your accounting right from the beginning. And unfortunately, maybe, your accountant isn’t necessarily the best person to advise you on this. Maybe other entrepreneurs, maybe getting several opinions from several accountants, or speaking to some people finance managers, or accountants in in, in, industry who don’t take clients. So, getting you as a client isn’t even an option. So, so there’s, there’s they can simply tell you what they believe the best practice is. A, a, and they’re, they’re not being compromised in any way. So, use professional help where you need it. Don’t rely solely on professional help. Get help and advice from people in industry, accountants, finance people, and make sure that you set up your accounting properly from the get go. If I am going to put one last word on this, which actually segues into our next topic, is I would say, when you choose your accounting software, you probably want to choose a software that is known for its ability to export into the next generation of software that you might need to use, when you reach a certain size. Because, there tend to be two sizes of software out there. There’s software for beginning businesses, and they just cannot handle large businesses. And, if that’s where you plan on going, If, if, if you are trying to, to grow a big business, you’re gonna be working in the multi-millions of dollars. You’re going to have to switch over to a more expensive software program later, so make sure that your software program is compatible with a changeover. And also with other technology that you may be using. And, we’re gonna talk about that a little bit more in this next session, section. Now, I wanna talk about the legal environment in which you’re incorporating really quickly. Because the legal environment that you’re in is going to determine what you need to do to incorporate your company, to get a lot of this stuff up and running. Do you need a lawyer? Or, can you do it yourself? There’s a lot of websites right now that will incorporate businesses for you. You, you pay them money. They’ll do the incorporation. It’s quick, it’s easy, and that’s enough to get up and running. A proper lawyer is going to argue, and say, well, you know, these are very generic, your articles of incorporation. And, they may not fit what you want to do in the future, and things like that. I don’t worry too much about that. Now, having said that, I actually incorporated with a lawyer. I, I go with a lawyer myself. I don’t do the online incorporation. But there’s underlying factors involved in, in my circumstance. I never dissuade anyone from simply just incorporating online. When you get to the point that you need to, you can always rewrite, re-file, amend articles of incorporation with a lawyer. So, what you might want to look at when you make your decision, is how litigious is your, is your environment? How likely is it that you’re maybe sued, or, or, or or taken to court, or something within the first year, or two, or whatever of your business? How litigious is or how likely is, is litigation, or legal issues, in the sector that you’re opening up in, or in, in your area? Okay, you wanna look at that. The more you’re more likely to need a lawyer, the more likely you probably are to want to use a lawyer early on. There’s the common, the common debate, you know, here in America is, do we, do we do a Nevada LLC or a Delaware Corporation? Why are so many big companies, and banks and stuff, why are they based in Delaware? What’s this myth of the Nevada LLC? Well, if you want a Nevada LLC, get a Wyoming LLC, it’s actually better, okay? Nevada, the state that has, you know, Reno and Las Vegas, it’s known for a state that doesn’t charge a lot of taxes. And, LLC’s there don’t really have to pay a lot. So, people go, oh, file a Nevada LLC. Okay, so, because it’s cheaper to do, it’s cheaper to maintain. Like I said, if you really want to go that route, go with the Wyoming LLC, it’s even better. But, the thing is, is, again, how litigious is the environment you’re in? How much legal help, counsel, support, legal problems do you expect to encounter? If you expect any turbulence, you probably want to be incorporated right where you’re operating, in the state in which you’re operating. Again, later in life, you know, none of this is written in stone. Later in the life of your business, you can change it. You can re-incorporate somewhere else. You, you can do that. If you want to be a big C-Corp, and take over the world, it’s probably not necessary this year that you incorporate in the state of Delaware. Although, ten years down the line, or on the day that you decide to to go public, maybe you want to incorporate in Delaware, because you’ll get some favorable conditions. Deal with that down the line. Some people try to be over savvy with incorporation in the very beginning. Incorporate close to home if you can. Keep it simple. These things can be changed later. Don’t worry about it. I wanna make a quick interjection here, and just give you a quick note on contracts. As I mentioned before banks are, and, and, and creditors are always gonna want you to co-sign in the beginning. And, when I say the beginning, up until you get a significant inflow of revenue into your company, your company reaches a significant size, they’re gonna want you to co-sign personally. The nature of the beast. But, there’s another thing that goes on with contracts, is that as, as, a, a young entrepreneur, or a new entrepreneur, where you’re, you’re getting contracts, and you’re signing deals with other companies. They always want to sign you into this durational contracts. Now, I wish you well in your business endeavours, but we know for a fact, that the vast majority of new businesses don’t last two years, don’t last one year, right? And,if you go three years, man, you’ve beaten all of the odds. And yet, a lot of times, right off, right off the bat, they want to sign you into a two contract, a five year lease, things like that. I just want to let you know that in my own experience, if you contest these things, you can often get them greatly reduced, or even get them thrown out. You can tell them, look, I wanna sign with you, I’m gonna sign with you for this service, I’m just not going to sign for a contract. I’m going to pay you for as long as I use this service. And, and, I want to use it for a long time, and hopefully I do. But, I’m not gonna sign it if you, if you say I gotta sign it for two years, I’m not gonna do it. And, a lot of times if you hold your ground on that, they just kinda, they’ll, they’ll, they’ll wave that, they’ll always do the, I have to call my manger thing, and you’ll get out of that. So yes, you’re gonna have to co-sign, that you’re not gonna get out of. Contracts, contest them, argue them, negotiate them. Get them either reduced, or eliminated. And, that can simply help unburden you a lot in, in your first years as an entrepreneur.