Small and medium size businesses are the backbone of the American economy, and this is something that we can all relate to in New Jersey.
I think we can almost all remember a diner, shop, video game store, garage, or hardware store that was unique to our neighborhood, and where the staff and owner knew us by name. Nostalgia aside, standalone businesses are not the only small and medium size businesses that can have an outsize impact on individuals and their communities. In addition to forming the backbone of the economy, many small businesses play an important role in the supply and support chains for the numerous Fortune 500 companies that call New Jersey home – this is an issue that hits home. Millennials, in addition to taking selfies and Snaps on an almost continuous basis, are almost universally known as an entrepreneurial group. As a millennial myself, who has dabbled in several entrepreneurial activities as I worked in the for-profit sector, non-profit sector, and now academia, I can state first hand that one of the biggest stumbling blocks for millennial entrepreneurs is a lack of understanding of just how accounting and finance can influence your business.
As a CPA, there are several key items that I have seen trip up businesses, new and established, and millennial entrepreneurs are even more sensitive to these issues. Already often juggling student debt, credit card repayments, and (most often) trying to bootstrap a business while working full time, who has time for accounting? Product and service development, hustling clients, and defending your market position take top billing; as they should. Located right between NYC and Philadelphia, there is never a shortage of bright and highly educated people, more and more of them millennials, looking to disrupt the status quo and make the next big thing. Doing business in New Jersey can deliver great rewards, but it is also an incredibly competitive environment. It is important to remember that most small businesses fail within 3-5 years of launch, and most fail due to a lack of capital or other related finance issue.
That said, let’s take a look at some of the finance concepts that every millennial entrepreneur should know:
1) Income vs. cash flow – Your income and cash flow are not the same thing, and this can mean the difference between being able to pay your bills, or having the lights shut off. Think of income like your annual salary, and cash flow like when the direct deposit hits your account. Cash is king.
2) Expenses – It is never fun to talk about expenses, profits are just are more fun. But do you really know what your small business or startup is spending money on? For example, are you paying too much for webhosting? When was the last time you checked the effectiveness of your advertisements? Getting a handle on costs is half the battle toward a profitable new business.
3) Taxes – The fun continues! All kidding aside, taxes are a part of life for individuals and small businesses – it is on you to know what your tax obligation is for the year. While you are keeping track of your taxes, be sure to check and make sure you are taking advantage of every credit and deduction your business is eligible for. From hybrid vehicles to solar panels, your business might qualify for more than you think.
4) Credit – Two quick things about credit. First, do not mix and match your personal credit cards and business credit – it can get messy very quickly. Second, credit (debt) is not always a bad thing – it is a tool like any other, and can give a millennial entrepreneur the breathing room they need to get things and running. Like any tool, however, debt must be used properly – millennials are acutely aware of the damage runaway debt can cause.
5) Technology – Social media, although fun, is literally just the tip of the iceberg when it comes to technology. From payment management apps, property management apps and programs, and the numerous (and mainly free) tools to video chat and do business with anyone at any time, why not make technology work for you? For instance, every food service should always have new pictures of their menu – bon appétit!
6) Use the experts (BONUS) – Millennials may be reshaping the economy, society, and how business happens here in the state, but we do not know everything. Check your ego, and never be afraid to ask for help. New Jersey has one of the most well educated and professionally qualified work forces in the country; this is a goldmine for millennials looking for some expert assistance. Incorporating a side hustle or small business, having a CPA or other certified professional help with taxes, or consulting other specific experts can only make the business stronger.
Finance and accounting are not usually the coolest topics to discuss and talk about, especially for entrepreneurs who are usually more excited about their new business idea than the somewhat dry topic of debits and credits. That being said, knowing some of the basics of accounting and finance can make the difference between a so-so side hustle or small business, and one that grows into a profit-making machine. Millennials, in addition to everything else, are known as a generation that is entrepreneurial, and brushing up on some accounting will only help. A great idea is a great start, but knowing your numbers can put you over the top toward building a sustainable profitable business. Better-informed people make better decisions, and better accounting can lead to a better business. I hope that this short list can help you jumpstart your startup.
Dr. Sean Stein Smith, DBA, CPA, CMA, CGMA, CFE is an Assistant Professor at Rutgers University-Camden. Sean is a member of the NJCPA Content Advisory Board, Emerging Leaders Council, and several other committees. He is the author of numerous academic and practitioner articles, including ones in Accounting Today, NJCPA Magazine, and Strategic Finance. Sean has also published two books on financial reporting, with a third book, focusing on finance for small business, forthcoming. Additionally, as a member of the AICPA National Commission on Financial Literacy, he has been frequently quoted and featured as a personal finance expert. He can be reached at drseansteinsmith@gmail and on Twitter at @seansteinsmith.