Small Business Finance Tips from CEO Thomas Carton

Today, we sat down with Thomas Carton, the CEO of Vertices, a firm specializing in accounting, tax, and business financial strategy. With a strong commitment to client-centric solutions and a wealth of experience in entrepreneurship and business management, Thomas has successfully navigated the complexities of starting and growing Vertices. In this interview, we delve into his entrepreneurial journey, discussing the inspiration behind Vertices, the challenges faced in its early days, and invaluable insights for aspiring business owners. Let’s dive in!

Inspiration Behind Vertices

SBS – What inspired you to start Vertices, and how did you identify the need for such services in the market?

Thomas – Vertices is the end result of a family of entrepreneurs that wants to help others achieve their business goals through proper financial strategy. We noticed that there were tons of CPAs, Accountants, and bookkeepers, but we believe their focus is wrong. In order to best provide actional advice for our clients, we focus on what the numbers mean for each individual business rather than how they affect taxes. If you’re too focused on minimizing your tax burden, you may not be focusing enough on how to grow.

Overcoming Early Challenges

SBS – Can you describe the initial challenges you faced when establishing Vertices and how you overcame them?

Thomas – The most prominent challenge we have faced while establishing Vertices has been pushing against the initial conception many business owners have when discussing outsourcing their accounting needs. Whether it’s a general distrust of accountants or, more frequently, an unwillingness to let others see inside their operations. The truth is that for many businesses, hiring a dedicated third party to properly prepare and analyze not only improves the quality of the books but adds a check and balances to the existing company.

Service Offering and Market Niche

SBS – How did you decide on the range of services to offer at Vertices, and was there a particular niche you aimed to fill?

Thomas – The range of services we offer at Vertices was selected as they give us the ability to help businesses, small and large, to understand the true financial state of their companies and provide guidance on success. The niche we aimed to fill with our services is owners and managers who want actionable financials and experienced advice, above and beyond the bare data necessary to file taxes.

Building a Client Base

SBS – Could you share insights into the process of building a client base when you were starting out?

Thomas – Our first set of clients came from the network we built over decades of entrepreneurial ventures and comradery. We also did a lot of door-to-door outreach to diversify our client base. From that initial start, we focused on providing the kind of service that people can’t help but recommend to their peers.

Keys to Early Success

SBS – What were the key factors that contributed to the growth and success of Vertices in its early stages?

Thomas – A persistent ground game and providing brag-worthy services gave us a huge boost to our early-stage success. Also adding to our growth was a diverse team of owners with skills that include sales and marketing.

Advice for Aspiring Business Owners

SBS – For someone looking to start a similar business, what critical advice would you give about market analysis and service offering?

Thomas – The most important consideration when trying to start any professional service business is to understand your target market. There are plenty of business owners who want what we do — high-tier financials and hands-on financial counseling — but there are plenty more who want consistent bookkeeping done quickly and cheaply. It’s not wise to think in terms of incorrect vs. correct markets or services. Any reasonable service has a market, the key is to knowing what market needs your service and how you get in front of them.

Common Accounting Mistakes to Avoid

SBS – What common mistakes do you see small businesses make in their accounting practices, and how can they avoid them?

Thomas – The most common mistake we see small businesses make in their accounting practices is to not track their cash. When cash is taken from a drawer or ATM to pay for something for the business, you must keep diligent records. That cash was received as part of your revenue, and when it’s removed without a record of a legitimate business expense, it will look like an owner’s draw rather than a deductible expense. Another common mistake we see small businesses make on their books is transferring money between their businesses. The practice of transferring money is fine in principle, but without proper tracking, these transfers can look more like revenue and cause future tax problems. Make sure you know exactly what transfers are going where and that they are properly tracked in your books.

Tax Planning Strategies

SBS – How should small business owners approach tax planning to optimize their tax obligations?

Thomas – Planning for your tax obligations as a small business can be a challenge. The first step is to have accurate and timely financials. Using these financials, you have a good idea as to your tax liability for any business completed to date. When forecasting your tax obligations, things get a little more complicated! There are a lot of good tools that exist for modeling potential profits over time. Many small business owners would benefit greatly from an accountant who assists in forecasting for this reason. Another good piece of advice for small businesses when it comes to tax obligations is to put aside your expected taxes in a separate account that is not to be touched. We have seen frequent cases of owners overspending and not having enough cash to pay taxes when they come due.

Effective Financial Management

SBS – Can you provide some tips for effective financial management and budgeting for small businesses?

Thomas – Setting a budget and sticking to it is the most effective way for small businesses to manage their finances. When profitable, make sure you put aside a portion of it for a runny day fund. Try to keep a few months’ worth of expenses saved up in case of an unexpected slowdown.

Importance of Professional Services

SBS – In your experience, how important is it for small businesses to invest in professional accounting and tax services?

Thomas – When small businesses receive accurate and timely financial statements, they are empowered to make the best financial decisions for their companies. A solid accountant does more than just provide you with financial statements, they also help guide you through the complexities of business tax and check in with you throughout the year. One service we provide our clients that helps them immensely is a quarterly tax review, during which we show our clients how much they may expect to owe and discuss ways they may be able to better manage their tax liability. It is those little extra steps like these that small businesses should be looking for in their accountants.

Key Financial Metrics to Monitor

SBS – What are some key financial metrics small business owners should monitor regularly?

Thomas – A key financial metric small business owners need to monitor is their Gross Profit Margin. No matter what industry you are in, the gross profit margin serves as a powerful indicator of the health of your company. In particular, the gross profit margin helps to identify the strength of your revenue measured against the costs directly required to achieve that revenue. A good way to utilize this metric is to compare your gross profit margin to the average in your industry. If you find yourself with your margin well below the average, it could indicate that you are charging too little or incurring too much of a cost to produce that product or service. Another exceptionally valuable metric is Free Cash Flow. Free cash flow tells the business owner how much cash their business is generating on a monthly basis. Knowing how much cash you clear is critical to planning the expansions and slow periods of your unique business.

Navigating Financial Challenges

SBS – How can small businesses effectively navigate financial challenges during economic downturns?

Thomas – The most effective way to survive the challenge of an economic downturn is to save up some cash in a rainy day fund. Taking out loans in order to survive is often the death knell of a small business. Other items to look at during tough economic times lie in your cost of goods sold. If you are able to renegotiate with suppliers, move around labor, and increase efficiency, you may be able to lower your costs enough to deal with the drop in revenue. As unfortunate as the tactic may be, layoffs are often an effective way to navigate economic downturns.

Technology in Modern Accounting

SBS – What role does technology play in modern accounting practices, and how can small businesses leverage it?

Thomas – Technology plays a huge role in modern accounting practices! The ability to upload and share sensitive information through secure upload links has been a massive time and energy saver for our clients and those of other firms around the country. Small business owners have their choice of expense trackers and receipt upload apps that can help make sure you never miss an expense.

Future Trends in Accounting & Tax Services

SBS – Finally, could you share any insights on future trends in accounting and tax services that small businesses should be aware of?

Thomas – It seems most likely that accounting and tax services will continue to trend towards being more technologically advanced. We are likely to see more remote accountants which can really help save money for businesses in high cost of living areas. Finally, there is no indication that the tax code gets easier, even if talking with the IRS digitally does! With the median age of accountants continuing to increase, it seems likely that accountants will continue to be in high demand.