We have talked about the common mistakes people made with their business accounting – like the usual traps small and medium businesses fell into with their book-keeping when they were sloppy and unmethodical, the 5 book-keeping bungles of substantial consequence owners make with the book-keeping itself…….
Here we talk about accounting issues they are faced with, not through any particular fault of their own, but tangles that anyway come about because they are a common tendency with businesses. With the right reporting and awareness, you can right these wrongs.
- Cash Flow
Companies fail, not because of bad sales, but on account of bad cash flows. Your business deals with batches of money in circulation. Without a proper cash flow, it’s basically buggered. For instance, let’s say your reports show that you made a big profit at the end of the month. But that money hasn’t come to you yet. So with your cash flow clogged, how are you going to buy inventory, pay your staff, pay the monthly bills, and have money for the everyday running of the business?
Inadequate cash flow could boil down to something as simple as the fact that you didn’t follow up on an invoice, or that you just aren’t prioritising, managing and allocating the cash properly. As owner and visionary of how your business will expand, you have to manage your cash flow decisively.
Don’t spend money you don’t have. Don’t spend money you think is coming. Don’t borrow money based on a due invoice. Until your client pays, you don’t have the money and it doesn’t belong to you. In fact you should extrapolate cash flows for the following week. Each week’s demands vary, so there is no fool-proof method of predicting a penny-for-penny cash flow. However, each week’s demands can’t vary so wildly that you can’t foresee to some extent the expenses you will incur. You know what your scene was this week, so use that experience to plan and budget better for the following one.
The most elementary necessity of doing accounts and doing them right is to understand how much money you had, how much you have and how much you will have. It is good to employ accounting software here to feed in this data and monitor the cash closely. Daily cash reports are important to understand how much you can spend without running deeply into credit or debit each week. Additionally, it gives you vital data on profit, loss and the possibility to expand.
Only your reserves can compensate. They are your safety net. Don’t spend money till you have it. Which means don’t spend based on expected invoices, but by using cash actually there in your bank account.
- Employment and retention of staff
It is quite a task to first hire the right staff, bring them up to speed, mould them to suit your business, and then lose them quickly to another company or for whatever other reason they leave. The time and resources that go into replacing them can run into thousands of dollars, which are heavy costs for a small company to bear. But worse is when your accountant itself – the custodian of your financial matters – has left, and you are stuck trying to get a replacement. This concealed cost tends to be a problem faced by a good many enterprises.
You need to remember that the success of your company is built on the skill you employ. They need to share your vision and feel happy coming to work. Obviously we aren’t talking about the natural churn of employees but about constant new replacements. In which case you need to figure out why they are so easily tempted to leave. It could be the lack of job satisfaction and growth, or it could be a monetary reason. Salary increments aren’t enough incentive. You should consider perks, rewards when targets are met, adaptable schedules, goals to encourage personal growth etc. But above all, make sure you are hiring skilled staff adept at handling the work and the pressure, and moreover who understand where you want to go with the business.
Consider outsourcing where you can. For instance, your accounting work can be partially or completely outsourced. Outsourcing your accounting works to great advantages as you benefit from the work of skilled staff who have access to the right accounting software and infrastructure and can be scaled according to your business requirements of the month. And all this while you still have full accessibility and control over your accounts, but also the freed-up time to now focus on your core business.
- Flawed reporting and delayed statements
With SMB owners running the show and usually trying to don all hats, they tend to get a bit scrambled. Where accounting is concerned, being lapse about certain functions can be harmful to the business’ health. For instance, when reports bear incorrect data, and decisions are made on that flawed report, it will cost you. Or let’s say something as redundant as a statement that is invariably delayed each week/month. Information that could serve as a tocsin for potential problem will be found out either too late to do anything or it may have already caused some damage which could have been avoided.
You need to insist on consistent reports submitted timely, and vetted before submission. This may seem like a minor task that is being given excessive attention, but remember that the devil is in the details and this can complicate the rest of the accounting functions dependent on it.
Be wary of what’s going on with your accounting. You may take measures to stay on top of it, but there may be some accounting situations you land yourself in without noticing it and may realise only when it bites you! So stay on your toes and keep an eye out for these nasty little buggers!