The 8 Most Common Small Business Financial Management and Accounting Mistakes
As a business owner, it is important to be involved in all aspects of your operation. However it is impossible to be an expert at everything. Many business owners struggle when it comes to looking after the Financial Management and Accounting of the business.
Some Financial Management and Accounting mistakes could have a significant effect on your business’ growth and adversely impact your bottom line, clog cash flow and potentially leading to damaged reputations with suppliers, customers and staff.
The following are the top eight common Financial Management and Accounting mistakes that small business owners make.
- Substituting a Professional Accountant with an amateur.
Employing a competent Accountant will free up your time and will allow you to focus on both the day-to-day managerial aspects of the business, and the long term strategic decisions. Having a good Bookkeeper and a proactive Accountant means you can know their Financial Position at any time.
- Not understanding the importance of Cash Flow
Every business fails when they run out of cash.
The majority of business owners focus on sales and profits, but cash flow is critical to the success of your business.
A company could be profitable but if it isn’t operated efficiently, it could still have negative cash flow.
New businesses may be able to endure negative cash flow in the short-term in hopes of achieving long-term success. Eventually, every company must focus on creating positive cash flow.
- Failing to plan
Few small businesses have a working budget and cash flow forecast. As a result, they make decisions based on guesswork and have no idea whether their business’s actual performance is better or worse than what they expected. How can you know how your business is performing if you have got nothing to compare it to? Not only is it important to have a budget and a cash flow forecast, but you need to compare your actual results on a regular basis.
- Failing to properly reconcile accounts.
Bank accounts, Accounts Receivables, Accounts Payables and Payroll should be reconciled at least monthly, as a cross check to ensure all transactions are accurately and completely recorded.
- Mixing personal with business funds.
One of the most common Accounting mistakes business owners make is to mix their business and personal finances. Keep a separate bank account and credit card for the business and only use them on business-specific transactions.
- Not keeping a proper paper trail
Paper trails still count, but even those can become digitised. However receipts are kept, the point is that they need to be retained. Receipts provide answers to any mistakes or gaps in Accounting Records and many offer additional deduction opportunities come tax time.
- Making critical mistakes with Payroll
Payroll is one of the essential components for a small business and any issues with staff payment can cause demotivation and poor productivity as a result. Some common errors are:
- Not understanding superannuation requirements for contractors
- Errors in salary sacrifice arrangements
- Failing to recognise Fringe Benefits and register for Fringe Benefits Tax
- Paying employees under the wrong Award
- Failing to ensure that long service or holiday leave is being accrued at the correct rates and leave loading is paid for any annual leave taken, if applicable.
- Incorrect calculation of overtime and time worked on Public Holidays
- Not embracing a Cloud Based Accounting System.
The ‘cloud’ is here and businesses should be on it. The key features of Cloud Accounting are automated bank feeds, automatically recorded recurring transactions, multi-user access so that your Bookkeeper and Accountant have real-time access, and having a better chance of recovering information if your system is damaged.
If you want to ensure that you avoid making these common Financial Management and Accounting mistakes, contact Nick Pollins today and find out how CloudForce can help you achieve your business goals.