The most common small business accounting mistakes… and how to avoid them.
Admin anxiety, form fatigue, paperwork paralysis. Whatever you call it, burn-out from running a small business is real. And while some business owners are suckers for a spreadsheet, for others keeping across the numbers feels overwhelming and risky (not to mention, a distraction from their true passion and the reason they started the business in the first instance). For many small businesses, hiring a bookkeeper or outsourcing their back office accounting pays for itself in peace of mind alone. But for those of you who are still prisoners to your P&L, we’ve pulled together a list of the most common accounting mistakes we see, and tips for how you can avoid making them in your business.
1. Putting off record keeping.
For admin-phobic types, the idea of managing documentation, filing, sorting, reconciling and reporting is enough to break out in hives. And while it can be tempting to put it off until later, regular record hygiene can save you a world of headaches.
Late (or missed!) filing of your tax returns and financial statements puts you in the crosshairs for big fines and even bigger problems like an audit. Always needing a nudge to pay your bills creates friction with your suppliers; and keeping your creditors on side, well, that’s just an essential part of running a good business.
So if sunlight really is the best disinfectant, it’s time to grab that old dusty shoe box from under your desk and set to the important work of tidying up your documentation.
And, if you really can’t bring yourself to get and keep organised, hiring a professional bookkeeper might be right up your alley. Hot tip: working with a bookkeeping practice, rather than an individual, means you’ll get year-round support – even on the days when your core adviser is sick or sipping mai tais on a beach somewhere.
2. Failing to budget and plan.
We know it sounds a bit cliche but in the case of your small business: failing to plan, truly is planning to fail. Small business owners are often so pressed for time they haven’t made space for detailed budgeting and the planning they need to do to succeed, and sometimes, to even just survive.
Whether you’re breaking even or shooting the lights out, making a detailed budget that gets to the very heart of your cashflow situation is critical for your business.
This means drilling down into your monthly, weekly and daily spending and getting a clear idea of your outgoings.
Next, have a deep dive into your income. Where’s it coming from and how frequently? Are your income streams reliable and steady? Or lumpy and a bit uncertain?
The industry and nature of your business can have a huge affect on your cashflow – think project based industries like architecture and construction, or fields that rely on contractors and seasonal temps like festivals and events or the arts and creative sectors. Planning for the ebbs and flows in your business can make a huge difference and indeed influence whether you end up surviving or thriving through dry spells or big tax bills.
And that brings us to our next big no-no…
3. Treating your budgeting and planning like an annual event.
It’s so important to remember that budgeting and planning aren’t set-it-and-forget-it exercises. You’ll need to revisit your plans often to check that you’re on track and adapt your behaviours where necessary.
It’s great to get a hand if you can afford it, because a good business adviser can help you design meaningful reports and systematic monitoring tools that serve as an early warning system if things start going off the rails. Moreover, they can help you stretch your own capability and connect you with other thinkers and big ideas for your future.
Programs like Ko-Lab can provide you with the tools and the constructive, actionable feedback you need to grow a healthy and agile business.
4. Not using the right accounting software.
There’s almost nothing more crucial to the success of your business than getting sorted with some great accounting software. It’s an investment in your future and can make daily operations much easier – particularly for a novice business owner.
Cloud accounting software packages allow you to effectively manage your finances from one central online account. Beyond handling your invoicing, expenses and payroll, there are also stacks of add-ons and app extensions that let you turn your chosen software into a true ‘command centre’ for your back office.
With thousands of extensions and integrations now available, finding the right ones for your business can unlock enormous productivity gains – think: CRM integration tools, sales funnel managers, receipt and expense trackers, data-scraping and data-entry automation apps.
But beyond the productivity perks, the real beauty about cloud accounting software is the opportunity to collaborate with others – an adviser, a bookkeeper, an accountant or even a partner in your business – in real-time. With access to live data and reporting, ‘doing your accounts’ is no longer historical and retrospective. It’s a living, breathing thing – just as it should be. Your organisation is an organism, after all.
Getting super collaborative has many benefits. A ‘fresh-eyes’ review of your work can improve transparency, reveal little mistakes that can turn into big headaches down the track, and it can even help you minimise the risk of fraud in your back office.
In short, without the right software, you (and your business) are really running blind.
And with that, our final accounting pitfall to avoid is…
5. Not really understanding where you’re at financially.
As an employee, getting an understanding of ‘where things are at financially’ is as simple as having a good look at your bank account. If you’ve got money to burn, you’re golden. If you’re creeping close to the red, it might be time to tighten your belt.
But when you’re operating a business, things are a lot less clear cut. To really understand where things are at, you need a reliable way of calculating how much you have on hand, plus what you’re owed, and less what you owe others – at any given moment.
Sound easy? Think again. This little calc takes a lot of work, good planning and healthy reporting systems to produce accurate and meaningful answers in the heat of the moment. And without access to this information and clean data, you’re simply unable to make good decisions for your business.
Tying it all together.
If you’re ready to get your business accounting in shape, take a moment to reflect:
Admin and records: Are your records in tip-top shape? What happens when you’re under the pump – does admin fall behind? Who can keep this important work moving in your absence?
Cashflow and budgets: Are you crystal clear about your cashflow situation and comfortable with the ebbs and flows in your business? Do you have a ‘living’ budget and documented plans for the future? If you don’t know where you’re heading, how will you know when you get there?
Software and insights: Are you making the most of your accounting software (including getting across the add-ons that can support your business)? Is your ‘command-centre’ producing meaningful information, and are you collaborating with others to make the most of your data and insights?
Real-time understanding: Do you know how your business is doing, right now? What about where it was at last week? Where will it be this time next month? How much business do you need to win in order to survive? To thrive?
If you need some assistance answering these questions, or others, we’re always here to help.
Our Integrated Advice Teams straddle the bookkeeping, accounting, tax, business advisory, financial planning and lending professions – offering your business and household a full suite of day-changing transactional support and life-changing transformational advice.
We’re also big tech geeks – Xero Platinum Champion Partner, Xero Adviser Certified and Payroll Certified. And, we’re MYOB Gold Partners. So, if you just need a bit of a hand getting started with cloud accounting or are looking to roll over your existing software, we’re ready.