No matter what sector your small business is in, proper accounting is crucial to your success. There are a variety of options you can choose from to help you manage your money, but none are completely perfect. Consider these common challenges businesses like yours often face while tracking financial operations and transactions throughout the year.
According to Alika Cooper, a correspondent for Business.com, about 82 percent of failed businesses collapse because of cash flow problems. That’s a broad statistic, but what it means for you is that you need to know where all of your money is, who owes you and what payments are due at all times. There are certain costs — like rent, utilities and insurance — that you always need to be prepared to pay on time. If your business operates with invoices and billing after providing a service or making a purchase, you might be hesitant to chase after payments from customers. However, you need to make sure that accounts are settled on time and in full so you have the money required to keep the doors open and lights on.
Like many businesses, you probably have several projects going on at once. These can be as simple as arranging a new display in the store or as complex as a rebranding campaign. Company finance expert Ivan Lavelle tells Bplans.com that one key to keeping projects on track is to assign them budgets. The size of the budget will take care of two possible issues: determining how much you’re willing to spend on a task and determining what scale you think it should be. Besides defining these parameters, setting money aside for these developments will also make sure that you figure their costs into your overall company financial plan down the road.
Reconciling your accounts
It’s very tempting to track your expenses and income in one place and rely on your own memory and math skills to keep everything straight. However, Cooper points out that’s not wise when mistakes are so easy to make. On a regular basis, it is essential that you review your transactions and compare them to the ones recorded by your financial institution or point of sale to make sure everything matches up. At the bare minimum, you should be doing these checks monthly. Cooper actually recommends you review all accounting transactions at the end of your business day to ensure their accuracy while the day is still fresh in your mind.
Relying too much on software
There are so many options in the world of accounting software, but don’t let the latest and greatest programs lull you into a false sense of security. Padgett Business Services cautions that there is a big difference between record keeping (what these programs actually do) and accounting. Depending on your industry or the size of your company, there could be additional laws you need to be following with your finances or tax deadlines you need to hit. While the software might help you in day-to-day operations, consider hiring an in-house accountant or a firm to make sure your finances are where they really need to be.
If you consider these common pitfalls and make an effort to avoid them, hopefully your business will be more prepared for long-term operations. As always, if you’re unsure about the state of your bookkeeping, call in the professionals for assistance.