Like it or not, healthy finances mean that you’re running a healthy business. As much as the idealistic startup wants to think it can change the world with shoddy accounting and a go-getter attitude, this simply isn’t the case. Strong businesses have strong fundamentals, and among the most important of those fundamentals falls into the hands of the accounting and finance department. Money is business, and businesses certainly can’t operate without it.
Here are 5 common mistakes that businesses of all sizes are making with some regularity:
1. Incomplete Record Keeping.
The typical problem here is a failure to put a system in place that makes it easy to not only archive, but to quickly search through important financial documents, records and receipts. Some businesses – even large ones – are still on antiquated accounting systems, such as the shoebox method. Modern businesses need a system that allows them easy access to important documents no matter where they are. Most are opting for paperless record keeping, and this trend should continue to grow in the near future until it completely dominates the business world.
2. Not Taking Advantage of All Available Tax Write-offs.
Many businesses struggle at simple financial tasks such as storing and properly recording receipts for business-related purchases or write-offs. In addition, the average business isn’t taking full advantage of a number of additional write-offs such as depreciation, work-related mileage, or travel, tickets, and lodging at that big once a year conference.
3. Not Having Balanced Books.
In most high schools, we aren’t even teaching kids how to balance a checkbook, yet we expect young start-up entrepreneurs to maintain balanced books even before they are able to hire an accountant. You shouldn’t be surprised at my saying that new or old, there are simply too many businesses that don’t take the time to balance their books at the end of each month, or even at the end of the quarter. Waiting until the end of the year and then taking your tax information to a CPA leads to an accounting nightmare of epic proportions and it really becomes clear why most businesses aren’t getting the full amount of their deductions – or even claiming them.
4. Lacking in Understanding of Cash In and Cash Out.
Most businesses have at least a basic understanding of this concept, but those without an accountant often struggle due to the great equalizer in the business world – checks. Not accounting for checks that are circulating out in the wild as well as fixed expenses, employee payroll, and the monthly rent and utilities leads to some frustrating situations when it comes time to measure what a business is ACTUALLY making. Sure, you did 4-million in revenue, but can you give me an estimate that’s even remotely close to accurate on how many checks you currently have floating around that have yet to be cashed?
5. Bad Business Credit.
As someone that deals with small businesses with some regularity, it’s amazing to me how little some of them understand business credit and how it affects your bottom line. While there are many businesses that never really use a business credit card, they don’t realize how it affects the terms and interest they get on everything from leases to product. If they only understood that fixing credit actually means more than having a high balance credit card, they’d take the time to actually look into bad credit.
While these are generalizations that not every business struggles with, you’d be alarmed if you learned just how many actually did. Once a business grows to the size of hiring an accountant, it becomes less of a problem, but even then, some of the largest businesses in the world have real holes in how they handle business finances. Don’t let this become a problem in your business… mind your books!