Before fully plunging into the discussion, it is imperative to get the basics clear. What is a small business? There are usually sole proprietorships, privately owned corporations or partnerships with a relatively small number of employees. There are innumerable small businesses in Singapore accounting for more than 50 percent of all jobs and sales. Small businesses are the life line of the economy and therefore their importance cannot be overstated. Of course, the basic motivation of starting a business is to make profits. Thereafter, maximizing on these profits is important for it is the only way to grow. But is this always achievable? Certainly not; there are several mistakes that small business managers make especially on bookkeeping that hinder the business from attaining its full potential. Below are some small business accounting mistakes to avoid lest you risk nose diving your sales.
Mistakes to Avoid For Small Business Accounting
1. The first killer accounting blow to your business is receipts. Where are your businesses’ receipts? If your business has not yet learnt to consider receipts for what they really are, which is cash; you might need to provide them with the motivation to keep up with them. If the authorities are to look at your tax returns, legitimate write-offs will come from only the purchases backed with receipts. It therefore follows that the lack of receipts directly denies you write-offs. In such a situation, your business throws cash out of the window. As a remedy, devise a system, whether electronic or manual that will file every single receipt.
2. Secondly, wrongly recording big purchases is a petty, but very serious financial mistake. The full understanding and knowledge of the distinction between short and long term assets can save your business tons of cash. It is painful to lose out on tax breaks by hulling all purchases made into one basket. For instance, packs of folders and new letter head designs are immediate consumables that should go under basic expenses. On the other hand, company vehicles and new computer systems are long term assets which will depreciate with time as they remain under use.
3. Mixing business and personal finance is a dangerous ploy. Its ultimate damages will turn out as monstrous. Many new business owners who do not have the expertise and experience to manage a business have the tendency of forgetting to demarcate the boundary between business and personal monies. It is not very hard to find yourself between a rock and a hard place by having business money scattered all over. Imagine how difficult it can get explaining to the authority intermingled business finances. Having a designated bank account for your business is the only solution to this problem.
4. Another grave mistake small business make is not having a definite management plan for their earnings. Planning is important, it is the torch light and guidance for every step a business should follow. It is not uncommon to find a company without a well stipulated earnings management plan. They usually withdraw money from one account for utilization in another without correctly accounting for it. The confusion this can cause is unimaginable. A well structured business will correctly account for expenditure, including savings and investments. To succeed, small business managers should have a master plan outlining how money will be spend.
5. Managers will fringe in surprise when the financial records of their business do not add up. The sole cause of inaccuracies in financial reports is the inconsistent recording of expenses and assets. When the person in charge of finances is not using the correct method to perform cash flow allocation, inconsistent financial records are inevitable. The neatest and safest way to straighten your financial records is the cash accounting procedure. Through it, you will be able to easily follow how cash is flowing in and out of your company business. Computerized payroll systems and accounting software are other helpful tools to protect you from running into financial blunders.
6. When too many individuals can access the financial records of a business or a company, they are bound to contain errors or alterations. No business, regardless of its size and mode of operation, should have unlimited and easy access of financial files be granted just to anyone. That can be suicide for the business. To curb such a menace, special software’s with several security hurdles that limit the access to a company’s financial files is the only solution. If possible, only those employees whose role is accounting should have access to accounting records.
7. Lack of an efficient file backing up strategy is another great mistake with severe side effects. Whether you are using a computerized or manual filing system, loss of files is a very common problem that businesses run into. Since the operation and future of the business might heavily rely on certain records, the disaster caused by their loss is unthinkable. This is one of the easiest mistakes to avoid. As a manager, instill in the employees dealing with financial records the delicateness of financial records and hence the importance of a backup plan. This may entail the use of a new cloud computing system, or a seamless combination of both online and offline backup methods. Some records have no replacement. As a result, it is only safe for a business if they are backed up.
In summary, how a business handles its records, with particular reference to financial records can either make or destroy the business. Receipts, planning, bank accounts, backing up of files, security of financial records, consistency and accuracy in keeping records are some of the factors that require serious consideration when dealing with a company’s finances. Payroll is another factor that determines the survival of a company. True, employees are the backbone of a business. A payment system that leaves employees complaining is a bullet in the feet of a company. A mistake with the payroll system can easily stall the company. When financial matters get out of hand, it is always important to enlist the help of experts. There are many companies with top notch professionals in the field, and having them on your team should get your business back on track. All you have to do is find a good financial consulting company.