Keeping the books is one of the more challenging aspects of running a company, particularly a small one. It is also one of the most important. As start-ups transcend from one man bands to SMEs, it is sometimes difficult for small business owners who are accustomed to being involved in every aspect of their business, to admit that they are not an expert at everything and rope in more suitable individuals to handle their accounting requirements. They also tend to favour doing things themselves on spreadsheets rather than investing in the appropriate accounting software.
Thanks to technology and a vast range of accounting solutions for today’s business owner, it is easier than ever to keep an accurate record of where your business’s money is going.
We all make mistakes! Some accounting mistakes are petty, and easy to adjust once noted. But others are more significant and could have a negative effect on your business’s health.
In our 30+ years helping small and medium sized business owners, we’ve come to recognise some accounting mistakes that can have serious negative repercussions for your business.
- Don’t try to do it all yourself! Passionate business owners tend to want to do everything on their own, if for no other reasons, to contain costs. When you first started out, you may have been the one person handing everything. But this cannot be sustained for long. Investing in the right people and resources is crucial and this is truer of accounting professionals. A junior accountant might be great at processing transactions, but likely lacks the skills and experience necessary to guide your company’s growth.
- You get what you pay for. This often holds true. When seeking out the cheapest methods to save on business expenses, it can end up costing you more money in the long run. You might hire an accountant at the cheapest rate but frequent mistakes in payroll taxes and late submissions can cost you more. If you are always looking for a cheap solution, you can often count on getting poorer results.
- Beware of the Spreadsheet. While offering great benefits, spreadsheets have their limitations and we often find their usage stretched to beyond what is sensible and where a proper system will be far more effective and secure.
- Don’t mix business with personal finances. Too many small business owners use a single account for both their personal and business finances. You need clear boundaries, apart from the fact that you can also get into some serious trouble with the tax authorities. The first step when starting a business is to open a separate bank account, and keep all finances separate from thereon.
- Profit does not always mean cash flow. It is tempting to post each new contract as income as soon as it is signed off and before the product or service is actually delivered. But doing so can make your business seem healthier than it is and give you a distorted view of your company’s actual financial condition.
- Record everything! From small payments to large transactions, it is important to ensure that everything is documented and categorised in your books. It is crucial that your business has a history of all its spending, no matter how minimal. This is particularly important in business scenarios where transactions are often cash based, from buying stationery to paying for a delivery.
- Categorise properly. Ensure you categorise transactions, assets and liabilities correctly. It is also important to distinguish between employees and contractors in order to avoid your business recording its accounts inaccurately.
- Perform a monthly check of your accounts which you need to ensure are kept up to date. It is important that your business reconciles its accounts frequently to allow you to accurately track your financial situation. Mistakes happen but when you regularly perform checks, those mistakes can be tracked and rectified in a timely manner without damaging your business.
- Budget. Kicking off a project without any concept of how much it could end up costing, is a quick way to end up spending a lot more than you anticipated. As your business becomes more established, you’ll become aware of how much money you need in order to continue operating. This makes it easier to set budgets for projects that are large enough to make success possible, but not excessive or wasteful.
- Automate what you can! With the use of software, certain requirements like payroll, budgeting and debtors’ statements can be automated, allowing you to spend your valuable time on other things you should be doing like actually running your business. Spreadsheets can only take you so far and hardly offer any security or reliability. So take your business seriously and invest in a software solution to manage your accounting requirements.
- Choose a modular software package that suits your business needs. Countless businesses overspend on fancy financial software because they are drawn into systems that are either too cumbersome for their requirements, or include a vast amount of modules that they will never use. So when choosing your financial package, remember to check its modularity, see that it fits your requirements and ensure that you are not paying for a system that is way too complex for your business.
- Back up your data. We can’t stress this enough for all aspects of your business. Any information that is critical to your business being up and running the next morning, should be regularly backed up, preferably off site, protecting you from viruses, theft or any natural disasters that may cause you to lose critical financial data.
At Shireburn, we understand small business challenges more than you could possibly imagine. Having started out more than 30 years ago as a one-man band, we have grown into a strong team of 40 professionals. Our experience dealing with countless business owners across all business sectors means that you can count on us to guide you through our financial and business software solutions, and provide the best fit for your business. Get in touch with us for a proposal and demonstration.