The simple answer: the minute you need to do some accounting.
That almost smart-ass answer is really pretty profound… because it focuses on something that many harried entrepreneurs fail to grasp: when you need to start looking at accounting data. Unfortunately, many entrepreneurs are not analytical types, and they don’t like to think about accounting or other backroom activities. As a result, they often crash and burn, because the “backroom” is just like the engine room in a boat: lots of critical stuff goes on there.
Let’s put it this way: you start out on a journey to someplace you have never been. The first thing you do is consult a map. What’s the difference when you are starting a business? None.
Successful business owners know that the roadmap of how they are doing is their accounting reports. They understand that looking at sales, expenses, assets, and liabilities is essential. It’s the measure of where they are and what they are doing. Sure, you can look at bits and pieces from here and there ( so called flash reports) but those have no proof of integrity. When you have an accounting system, the reports you get have a much greater level of integrity and reliability, due to the internal checks and balances built into accounting systems.
So, when should you start looking at this accounting stuff. Just like the map for your journey, BEFORE you actually begin. What?
You should engage an accountant to review your business plan. Amazing what insight they will have, because they have probably seen businesses just like yours.
You need to engage an accountant to help you design your accounting system, make sure you have proper internal controls to prevent loss, fraud, theft, and inaccuracies, and streamline the process of accounting for and reporting on operations. Just buying and installing QuickBooks is NOT sufficient. Remember the old saying “garbage in, garbage out?” Nothing could be truer than in an accounting system. The “system” begins at the sales process, and continues throughout the enterprise’s activities. How will you get the data to input to QB or some other accounting software? How will you know it’s complete and accurate and timely? How will you catch errors in data? What support will you have to back up accounting entries? How will you organize it, store it and use it?
You need to engage an accountant to test that things are going well early in the start up. They need to be sure that the accounting record systems are functioning correctly. For example, we had a restaurant client who’s staff was keying in things wrong at the register and as a result, they were unable to track sales right, ordering of food was off, waste was sky high… all because they hadn’t set up and implemented the POS system correctly. We caught it early on and saved them thousands.
You need to have your accountant prepare financials early on. You must have a good measure of whether you are on track or not. You must keep close control over costs and monitor revenues carefully. A financial statement is essential for this purpose. Make that accountant review them with you, and ask lots of questions. Understand what the financials say, and use that powerful information to trim your course and measure your progress. I recall an entrepreneur I had who would look over the financials I prepared and focus on one number, the “bottom line.” He’d spend two minutes looking at the reports, his eyes glazing over at the really cool cost analyses I had prepared, and then shove the whole masterpiece in the bottom drawer, never to see light again. Early on, I surmised he was in trouble. He was but couldn’t read the financials. So, I started creating graphs from the information. All of a sudden the 5 minute discussions turned into 50 minutes, and at one point, 5 hours. This guy saw the light and eventually, I was able to introduce ratios, industry comparative data, and non-financial metrics into the mix. The business was struggling when he first engaged me, but after a year, things began to turn around rapidly, and within five years, he had grown the business 10 fold.
So, long answer summarized: you should engage an accountant at the business plan stage of your enterprise, and keep them involved as you launch and grow. Yes, it will be expensive, but it will pay handsome dividends because, unlike a lot of your competition, you will have accurate financials and really know what’s going on in the business. You will have information that can make you better prepared than your competition, more aware of your internal operations, and better able to focus on those elements of the business that make money.