With the complexity of accounting, compliance and bookkeeping processes increasing and the juggle of business owners to keep their business profitable, especially during these challenging times, it’s easy to understand where some small and medium business owners will make mistakes with the financial aspects of their business. We highlight the most common mistakes made by SMEs that need to be avoided to ensure the success of their business.
Lack of Time Invested in the Bookkeeping Process
Accurate and compliant accounting and bookkeeping is crucial to the success of a business. This includes making sure each financial transaction, regardless of the size, is correctly recorded in your accounting books and all payroll and tax obligations must be met and follow the relevant legislation. Whether undertaken by the business owner or someone else, these processes will take a commitment of time to ensure the accuracy and completeness of all your transactions and due diligence on the part of the business owner. Whether your business is big or small, a complete and accurate set of accounts can provide you with valuable insights into the financial health of your business.
Not Performing Account Reconciliations
Performing account reconciliations can be simple if you regularly keep on top of it. This involves comparing your general ledger transactions with the bank statements. Reconciled accounts ensure that bookkeeping errors are rectified on a timely basis before they result in significant issues for your business.
Not managing your budget
Some businesses fail to set a budget and regularly review it or start projects without a budget. Without a budget, many businesses fall into the trap of spending more money than they intended. Neglecting to set and manage a budget can make it very difficult to understand and control your business expenses. Businesses may forego opportunities if they don’t fully understand how much funds are available as opportunities arise.
Cash vs Accrual Accounting
Cash accounting may seem like a more straightforward method of accounting, but it has its drawbacks. It maynot give an accurate picture of your financial performance. For example, your business may appear to be profitable when in fact, many outstanding bills haven’t yet paid. It also does not provide a long term view of your finances, making it difficult to make wise business decisions. Accrual accounting provides a more accurate view of the financial health of your business andwill help with making strategic business decisions. This will also help when setting and maintaining a budget and forecasting.
Trying to Do It All
At the start of the business, many small business owners will perform many roles within their business to save costs and keep everything within their control. However, it’s vital that even from the start-up phase, bookkeeping and accounting functions are undertaken by qualified bookkeeping and accounting professionals who can ensure your business is set up correctly from the get-go. This also frees up your time to focus on the core of your business and make it profitable. This will also save you time and money in the long run as you will avoid any costly mistakes.
Combining Personal and Business Expenses
Separating business and personal expenses is crucial, and you will need to set up a separate business bank account and credit cards when you start your business. All business income and expenses should be kept strictly within the business accounts. This will help create a clear line between business and personal capital should any legal issue arise. This will also avoid an inaccurate perspective of the financial performance of your business. Combining personal and business expenses can also cause you to lose track of expenses you have personally paid, and you may not be reimbursed. It can also take longer to sort through and track business vs personal expenses later.
Thankfully all these mistakes can be avoided by engaging a qualified professional in the accounting and bookkeeping field. Outsourcing is an affordable way for SME’s to engage highly skilled professionals who can provide quality reporting and expert advice. This is especially advantageous to time poor business owners who may not be able to put in the time and effort to manage it and can better utilise their time by focusing on the growth and profitability of their business.