5 Accounting Mistakes That Harm Your Business
Small businesses commonly plan to handle their own accounting to begin with. This can be to save money or because there isn't much going on so how hard can it be?
Accounting is much more than adding and subtracting, and when an error arises, it can cost the business significantly. Making a mess of the numbers can skew what is actually happening or perhaps lead you to make the poor decisions from poor data.
Small businesses often have accounting mistakes because they haven't had the proper guidance or support. Here are 5 to avoid:
1. The Plate Spinner
You're an entrepreneur now. You've done it - broken out of employment and pushed into the wild world of running your own business. It's not without its thrills, but you can sometimes become too involved and end up doing everything. Even things that you aren't great at!
Now when you first start out, you probably are going to be the person heading up your marketing. You definitely will be the one driving the sales and as above, you probably decided to have a go at maintaining your accounts as well. The problem arises when you are trying to spin too many plates and end up letting the quality of your service deteriorate, and it can start costing your business. You need to know when to delegate.
Your time is your biggest asset to begin with, and the business needs your attention to grow and prosper. It's worth hiring an accountant to take some of the burdens away, and if they are good, they can even advise and help your business to grow further.
2. The Big Spender
You've been doing well the past few months. Those sales opportunities have been booming, and you're having a great time. There's plenty of profit in the company so far, but the only issue is that people have not been paying on time. You start to struggle to pay your bills because you are waiting for your customer to settle their invoice. You are making money though so how is this happening?
Profit and Cashflow are not the same. They affect your business in different ways and offer a different point of view on how your business is really doing.
Cashflow, in layman's terms, is the inflow and outflow of money within the company from financial activities, operations and investments. Your profit is what is left once you have deducted your business expenditure from the sales revenue.
A profitable company can go broke if the cash flow is poor - managing your spending and your credit control is vital to survival. Whether it is picking up the phone or using an automated system such as Satago or CHASER, you need to ensure that the customers are paying you.
3. The Mixer
This can become messy quickly, so you have to open a business bank account as soon as you've registered your business. Be it a sole trader, partnership or a Limited Company. It's a slippery slope if you operate out of a personal bank account, so it's advisable to run all your business income and expenditure through a separate, business bank account to help keep everything in control.
It's still okay to pay for things personally on behalf of the business, sometimes this happens, but it's crucial that you keep records of these so you can claim it back against your business, so you are reimbursed.
Keep your personal and business records separate for less stressful, pain-free record keeping.
4. The Thrifter
It's always tempting when starting out in business to go for the cheaper options out there. You're not sure how your business will perform and if you've even made the right decision! It's understandable that you don't want to put a load of your money upfront for something that might not turn out as you expected.
The phrase "cheap and cheerful" also goes hand in hand with "You get what you pay for" and if this is your business and your customers that are affected by poor work or cheap design then you're going to regret not going for quality over the price.
It can end up costing you more money as well. You hire an accountant that has the cheapest rate, and this seems like a great idea to begin with. When the mistakes start appearing and lack of guidance or late tax filings then you're going to wish that you saved yourself the hassle and went for a quality service to begin with.
This also applies to your products, your website, business cards and pretty much everything that will affect your business or how your customers will view your business. This doesn't mean go all out from the get-go and put your cash flow in danger but choosing right from the beginning can save you the hassle and costs long-term. Cheap prices usually lead towards poor service.
5. The Technophobe
The digital era is well and truly amongst us, and it's never been easier to get a business up and running. Most service businesses can operate from anywhere with a WiFi connection, and business is truly mobile these days. Many accountants live and die by Microsoft Excel and are all to ready to give you a nice spreadsheet for you to keep your records but this is also archaic now, and your business needs all the help it can get!
This is why a cloud platform is the key to success. Software companies like Xero and Receipt Bank really ensure that your bookkeeping is easy to manage, and there's plenty of software services out there to help you with inventory, sales pipelines, reporting, e-marketing and social media. Everything that a new business will need to help keep things as smooth as possible.
There's going to be a lot on your mind once you've just started your business. You're out to change the world or to make people's lives easier or even just to show everyone your amazing product. Don't let your business fall foul of accounting mistakes and trying to juggle everything at once.
See the accounting side of things as an investment that will help your start-up to become established as a functioning, profitable business and you will be able to make informed, business decisions on sound financial data.
If you have recently set up your own business or are thinking about it and would like to speak with an accountant then please get in touch and we will be more than happy to assist.
About the author
Ben Nacca is an accountant but is nothing like the stereotype you have visualised in your mind! He has worked in the accounting industry for almost a decade and is CEO here at Cone.
Ben loves travelling the world, playing video games and playing his acoustic guitar whenever he finds the time between spending time with his two chihuahuas, Hugo and Pablo!