Constantly Ignoring Your Bookkeeping Task Can Cause Business To Fail

Any business endeavour will not be complete without bookkeeping. Although the task usually involves dealing with numbers, accuracy in entering financial details is also important. For small businesses, hiring a bookkeeper is burdensome because of the cost associated with it. This is why small business owners skip hiring a bookkeeper to save money. Unfortunately, bookkeeping errors can cost more money in the long run. When significant details are not entered properly, these mistakes can impede business growth. Proper bookkeeping procedures are essential because it prevents financial trouble.

Don’t manage crucial bookkeeping tasks on your own

You may be one of the entrepreneurs who are passionate about your business that you tend to do everything on your own, but problem may arise especially if you are only running a fledgling company. If there is only one person handling all of your tasks, this can spell trouble because in due time the quality of service also deteriorates. One of the important aspects of managing your business is maintaining accounts and you need a reliable bookkeeper for that. To prevent frequent errors on your financial report, make sure you pay attention to the financial aspect of your business by hiring a bookkeeping professional to handle your accounts.

Choosing the cheapest methods

When it comes to cutting costs, seeking out for the cheapest methods create a ripple effect on your business. You may think about the least expensive method that can help you save money until you grow your business, but this may not be considered effective especially if there are frequent mistakes on your report. Your business cannot afford to make mistakes in payroll taxes. Instead of going for the cheapest method, invest in people that can help you deliver quality work. The cheapest option may only lead to unsatisfactory result.

Unable to tell the difference between profit and cash flow

Some business owners mistake profit for cash flow. The profit refers to the money you obtain from sales revenue after the expenses of your company have been deducted. On the other hand, cash flow refers to the money that flows in and out of your company from business operations such as financial activities and investment.  A business owner should also take note that even if the company is profitable, it can still go broke. When these mistakes are frequently committed, it is possible for your business to go bankrupt. To avoid this, it is essential to keep track of the items you are selling and spending. You will also have to take time to review your financial statements on a monthly basis so you will have a clear idea of your financial situation.

Mixing personal with business account

You can mess up your business finances once you make it a habit to mix business with personal finances. When you open a business, create a bank account that is exclusive for your business income and expenditures. Your business bank account should be intended for your business finances only. When you fail to separate your business accounts from your personal accounts, you will have trouble keeping track of your finances. A separate business account can help you get a pain-free record keeping.

What Exactly Is A Cash Flow?

Although the cash flow definition is pretty straight forward as it is simply the money that flows in and out of your company, it is still considered as the most important aspect that every business owner needs to pay serious attention to. It can be compared to a checking account ledger where deposits and withdrawals of cash flows are reflected.

However, many businesses fail to keep track of their cash flow that it is already too late to discover they have negative cash flow during the first year of their business operation. Negative cash flow refers to the decline in the cash balance over a particular period of time. Although it differs from negative cash balance or bouncing checks, negative cash flow also has a deleterious effect on your business.

Although negative cash flow can happen from time to time, it is still essential to monitor it because when the time comes a business owner wants to grow the business, get loans and attract investors, there is an assurance that the business has a healthy cash flow.

Cash Flow Statement

A cash flow statement provides you details of the changes in the cash balance. This statement is used for recording cash flow projection, which is helpful in forecasting the future of your business’ financial aspect. When managing and growing your business, it is important to have an up-to-date cash flow plan. Even if you have a bookkeeper to take care of your cash flow, it is still important to understand cash flow so you will know the difference between cash on hand and the money you are owed. One of the reasons for bankruptcy is the delay in paying receivables. Delayed payments only mean that a company has trouble handling operating expenses.

Your business can increase the possibility of success with good cash flow management. Hiring new employees, making inventory purchases and spending money on office improvements are just a few of the benefits of a positive cash flow. A company will have trouble acquiring new leads due to managing cash flow poorly. This is why business owners must see to it that cash flow is monitored on a regular basis.

If there are future problems with cash, forecasting cash flow will help a business owner identify them. Both bookkeepers and business owners will have an ample time to make plans in advance so problems do not create an impact on day-to-day activities. Even when cash is tight, having a solid understanding of the best time make pay outs will make a difference.

Why DIY Bookkeeping Is A Big No-No?

Bookkeeping is a task that demands accuracy because the financial information is used for analysing the financial standing of a business. Taking on all your bookkeeping practices can be a problem in the long run especially if you do not have sufficient knowledge and training. Bookkeeping tasks should be left to a bookkeeping professional to ensure that everything is in order. One of the problems that business owners will face due to DIY bookkeeping is poorly submitted financial data. It is difficult to resolve ATO queries if your financial data indicate potential problems.

Common DIY Bookkeeping Problems:

1.    Losing records. Business owners often lose track of important receipts, which are used for filing tax returns and claiming for GST. These receipts need to be recorded regularly so you can present a detailed record to ATO in case they need it. When you resort to DIY bookkeeping, these important things are overlooked.

2.    Unable to deal with bookkeeping software’s complexities. While the basics of bookkeeping software can be learned, there are still some complexities of bookkeeping software that you need to tackle so you will know what needs to be done. When there are underpayments on your tax returns, the tax office will penalise you for it. However, you can save yourself from the stress that the process gives when you leave your bookkeeping software to an expert.

3.    Missing deadlines. Another way DIY bookkeeping can wreak havoc on your business is when you fail to lodge your tax payments on time. It is easy to keep track of important payment dates if you have a bookkeeping professional to deal with them. A bookkeeper will be the one to schedule and track due date so the necessary paperwork is completed on time.

4.    Cannot track expenses. It is difficult to identify the receipts relevant to your business and tax deduction if you have missed out on tracking your expenses. Even in petty cash, you need to make sure that you know where your money is going. If you do not keep receipts, you just cannot claim for every receipt you have. This is going to create chaos in your business.

Business owners may think that hiring a bookkeeper is costly, but running a business without a bookkeeping professional spells more trouble. Before you decide on considering DIY bookkeeping, think about the advantages of having a bookkeeper to complete the task. You will not worry about your expenses and tax payments because a bookkeeper will take care of them.

How To Improve Your Cash Flow?

Cash flow is the heart and soul of the financial aspect of your business. Without it, any activity that requires the use of cash will not prosper. Business owners use cash for paying suppliers, employees and others who are serving your business. If cash flow is handled properly, you can generate an impressive return on your investment. However, this will only be possible if you are going to keep an eye on your cash flow. While there are still aspects you need to keep an eye on, your cash flow must be closely monitored because when left unchecked, it can be one of the reasons for a failed business.

Track your expenses

How will you know where your money goes if you do not track your expenses? Money movements must be tracked for your business to survive. Make sure you track the invoices issued and paid to your clients, the invoices received and paid and the taxes withheld. Use bookkeeping software to ensure that your information is updated. Aside from making the process easier, you can also stay on track with the movement of your money.

Do not ignore your accounts receivable

You can avoid cash flow issues if you consider submitting a project proposal. This way, your payment conditions will be clear. You should also see to it that the invoice you send has clear payment terms. You can also increase the chances of getting your invoices paid if you use magic words: “please” and “thank you”.

Follow up on debts

If there are bad debts you need to follow up on, remind them in a friendly manner. The email should outline the details of the payment and schedule follow-ups including phone calls and email messages. Some software allows you to enable late payment reminders so you can regularly follow up on bad debts.

Make it a habit to schedule bill payments

It is also a good habit to schedule the payment of your bills on or before the due date. This is a good practice that professional organisations should follow because it keeps your cash flow in check. Being unmindful of your payment due date can be a problem in the end if the bills start to pile up.

Monitor your cash flow

Cash flow forecast is important as this allows you to determine if you still have enough cash to spend. If you do not know how a cash flow forecast works, you can ask your accountant or bookkeeper to create one for you. When you forecast cash flow and compare actual figures, you will be able to identify the areas of your business that require immediate attention. If there is a discrepancy between the two, make sure you examine further so you will know if there are uncontrollable spending going on. It is easy to identify which areas of your business you should focus on if you have a cash flow forecast.  Many young businesses face cash flow problems and when these are not addressed immediately, your business can take a nose dive as it will not survive considering the expenses associated with managing a business.