An accounting strategy is critical for the future success of your company.
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As a business owner, it is important to develop a sound accounting strategy for the core aspects of your business. It’s important to follow federal and state regulations, ensure you have your process and checks in place, and that your overall accounting strategy supports key business initiatives.
Accounting Strategy: An accounting strategy is a financial plan, strategy, and action items that support a business goal. It is a way of evaluating financial data and approaching record-keeping. You may have multiple accounting strategies in play at once, but each one will support a clear business goal.
You may be developing your first ever accounting strategy, or moving into more advanced goals. Here are some steps you can take to build an effective business strategy for your Houston-based business:
A good first step is to identify the business goal that your accounting strategy will support.
Is your business looking to expand or change revenue strategy? Is your focus on streamlining operations and staffing? No matter what the business goal is, it surely will impact accounting and how you approach the financial element of your business.
Here are some examples of what your business goal might be:
These are just a few business goals that require a sound accounting strategy. As an example, if you are planning to acquire another business within the next 3-5 years, you will need to ensure your accounting records are accurate, that you’re showing enough profit (if you plan to secure funding), and that you are able to provide relevant reports to stakeholders throughout the process. Conversely, if you’re looking to expand inventory, your CPA can help you create an accounting strategy that indicates when and how you will invest in your new inventory, provide adjusted profit projections based on that new inventory, and forecast the overall impact on your business.
There are numerous accounting strategies your CPA can walk you through, but most strategies fall under two categories: growth strategies and cost-cutting strategies.
Growth strategies are designed to help support your business as it expands. The focus of your growth strategy could be streamlining production operations, shifting focus to a specific
Some common growth strategies include:
Cost-cutting strategies typically come into play if a company is reporting losses at an unsustainable level.
Some common cost-cutting strategies include:
You don’t need to have an advanced understanding of how accounting strategies work, but having a clear understanding of what your goals are and how you might get there can make the process smoother.
Seriously, hire a CPA.
CPAs are certified through a four-part exam, with sections on:
These tests aren’t easy. In 2022, the average pass rate ranged from 43.76% for Financial Accounting and Reporting to 59.85% for Business Environment and Concepts and for the Regulation section. This means that more than 55% of potential CPA candidates didn’t pass the Financial Accounting and Reporting section in 2022.
Putting together an accounting strategy is one of the most impactful things you will do for your business. Even if you have an in-house bookkeeper, consider hiring a Certified Public Accountant (CPA) at least for a consulting period to ensure you set up your records and reporting properly.
Gather accurate reporting on the financial state of your business. This should offer a full picture of the financial health of the company, as well as a list of any plans or coming events that could alter the state of your business.
This should include, at the very least:
Your CPA will use this data to determine which figures matter to the accounting strategy and goal, while also giving them an opportunity to identify red flags, potential issues, and any additional jobs to be done.
With your business strategy understood and your CPA hired, it’s time to sit down together and determine which figures matter. This means historic data, the current financial health of your company, what is required, financially, to implement the plan, and what reports will be necessary throughout the process.
This will vary greatly depending on the goal of your strategy, the specifics of your business and industry, and the timeline you are working in.
Once you and your CPA have determined with figures matter, generate reports on historic data that can give both a birds-eye and detailed view of the numbers over the lifetime of your business. This will be helpful in identifying any cost-siphoning items on the balance sheet, opportunities to increase efficiency, and determining the impact of implementing your new plan.
If, for example, your goal is to expand inventory or open a second location, it’s important to have up-to-date, accurate, and overall solid data on the costs associated with doing so.
Conversely, if you’re goal is to trim costs, streamline operations, and repay debts, you’ll need a clear picture of how much you owe, loan terms, interest rates, and the numbers associated with costs you’d like to trim.
This will be a specific to your goal step, but your CPA will typically request any cost data that will be necessary for budgeting and forecasting.
Forecasting goes hand-in-hand with budgeting, and a critical element of any accounting strategy. The forecast is used to project future growth and revenue, in business planning, and for preparing for the future. Forecasts typically consider historical data, industry trends, overall economic growth, and potential pitfalls. While your budget will impact your forecast, it’s typically on the scale of how different budgets will affect the timeline of your business goal.
With the state of your business, historical data, and the costs associated with your goal determined (along with other critical information discussed with your CPA), it’s time to create a budget. Your budget will be the guiding principle for how you move forward, ensuring your goal remains achievable and realistic. Budgeting often happens in tandem with forecasting, in which historical data is combined with other information to forecast things like projected revenue and expenses.
Your CPA will offer specific guidance on budgeting and forecasting, and be able to speak intelligently about your business’ specific needs.
While not always the case, there are times when a business initiative lines up with funding opportunities from national, state, and local organizations. Be sure to check for any grants opportunities or tax incentives in addition to exploring other funding.
Houston offers various grants for businesses to promote economic development and job creation. These grants can help businesses obtain financing, expand their operations, or launch new products or services. By taking advantage of Houston grants, businesses can access financial resources that can help them grow and succeed, while lowering costs on operations.
Small Business Grants in Texas
Tax incentives are special tax breaks offered by federal, state, or local governments to encourage specific behaviors or investments. Businesses should carefully review the eligibility requirements for each tax incentive, and it is highly recommended to consult with a Houston Tax professional while considering these incentives to ensure all guidelines are followed.
Texas offers a few incentive programs that range from cash awards to funding for employee training and even sales tax exemption.
It’s difficult to offer specifics for what the decision-making process will look like for you, but what we do know is that implementing an accounting strategy will impact every area of your accounting process.
Be sure to look at how your goal will be supported, monitored, and reported on in the context of:
and, from a process standpoint, what do you need from:
Let’s assume that a small business owner needs basic accounting services, such as bookkeeping, tax preparation, and financial statement preparation. Hiring full-time accountants to perform each task would cost way higher than consulting an experienced accountant who can take care of your accounting needs. This represents significant cost savings for small business owners.
A critical step in forming your strategy is to set up an action plan. This is where you (and your CPA) break down the overall strategy into actionable steps your accounting team must take to implement and maintain the plan.
Things that might be included on your action plan:
In this process you will likely also identify stakeholders, determine roles and responsibilities, and determine workflows and reporting. Make sure that your action plan is realistic and achievable, and that your team is informed and aware of their responsibilities and the expectations. However, if you are working with a CPA, most of this responsibility will fall on them and their team.
If you don’t have a CPA, developing an accounting strategy is a great opportunity to hire an accounting consultant to provide necessary expertise.
In-House Accountant or Accounting Consultant: Which is Right for You
Always follow the guidance of your CPA when it comes to record keeping, data and receipt management, and taxes. Here are a few common best practices for any accounting strategy.
Separate Business and Personal Expenses
Be sure to not mix your business and personal expenses, and understand when something qualifies as a business expense and when it does not. Business expenses should be covered only by business accounts, and personal expenses should only be covered by personal accounts.
Precise accounting records can only be made if you keep your personal and business expenses separate. Moreover, you won’t be able to determine your business’s financial health accurately if business accounts are used to pay for non-business-related expenses (and vice versa). It complicates the financial records and can have major consequences.
Accurate record keeping will help you make well-educated choices about your business and goals.
Accurate records come into play for everything from seeking funding and expanding your business to identifying errors and preventing fraud and corporate theft. The accuracy of your records has a direct impact on your company’s credibility with stakeholders, partners, clients, employees, and the IRS.
Read More: Bookkeeping Audit Checklist
Use your accounting software for everything from logging receipts and recording transactions to generating reports and creating projections. Your CPA will utilize this data to generate trends and business insights, identifying cost-leaks, resource-intensive areas and what’s causing high expense. It will also allow you to generate historic data quickly and accurately.
We always advise that you use the accounting software your CPA recommends.
Your best option for following tax filing requirements for Houston, Texas and your Federal Taxes, Houston CPA has already provided consultancies to businesses in the same area and saved their money, you should take advantage of his/her experience.
Moreover, following are some of the steps you can follow to make your Houston business regulatory compliant:
Read More: How to Start a Business In Houston
If your records aren’t backed up financial records, they are at risk of losing important financial data in the event of a natural disaster, theft, or other unexpected events. There will be difficulty tracking income and expenses, which can lead to inaccuracies in financial statements and tax returns.
One easy way to keep a backup of your financial data and business receipts is to store your data digitally and use a cloud-based accounting software. In the event of data loss, digital recording software, such as cloud storage, can help recover lost data. You should utilize backup options to protect against data loss.
Just like any other state, Texas has unique tax laws, regulations, and incentives that can make accounting and tax compliance a complex process for businesses. While working with a CPA is essential for any business to ensure proper tax planning and strategy, working with a Houston-based CPA who has experience with the local tax laws and regulations can be even more valuable (especially if they have experience in your market or industry).
Our Houston-based team provides insights and recommendations that help our clients navigate business and accounting more effectively. As partners in your business success, we work closely with our clients to develop effective accounting strategies that make sense for their businesses, whether it’s a unique entity structure for real estate companies or budgeting and forecasting to ensure stability for digital creators and online brands.
Check out our reviews for more specifics on how we can help you.
There are innumerable ways to approach building an accounting strategy, but the most impactful and effective strategy is the one that works for your business, your goals, and your financial team.
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For assistance in planning and transferring your U.S. assets to Canada, please contact our colleague Phil Hogan, CPA, CA, CPA at (250) 661-9417 or phil@philhogan.com
