Best Business Practices

Small businesses make accounting errors and oversights regularly. Here, we cover five of the most common small business accounting mistakes. Read on to see if you’re making any of these mistakes and how to avoid them in the future.

1. You don’t take bookkeeping as seriously as you should.

Recording everything is an excellent rule to follow for bookkeeping and accounting for a small business. Ensuring that everything is recorded and categorized correctly in your accounts is essential, from small transactions like purchasing office supplies to large payments from customers and clients. No matter how small your company is, accurate bookkeeping and accounting methods are essential for a reliable assessment of your company’s health.

If you’ve slacked in this area, find the weak spots. For example, you may need to: categorize your assets and liabilities correctly, have a monthly accounts review, or establish a new bookkeeping system. A sound bookkeeping and accounting system is the only way to know how your business performs.

2. You refuse to outsource your accounting needs.

If you read point one above and the need to establish a new bookkeeping and accounting system rings true, you’ve identified a serious issue. Many small business owners decide to handle bookkeeping and accounting in-house because they feel “too small” to justify outsourcing those tasks. While the temptation to reduce costs by controlling the books in-house is tempting, it can be overwhelming when trying to manage a business and wear the accountant hat.

Handling your own accounting could be costing you money. Accountants understand ways to save businesses money that can escape others. They know all the ins and outs of taxes, deductions, write-offs, etc. It’s what they do all day, every day. Consider outsourcing your accounting to a qualified firm instead of missing out on opportunities to save money.

3. You outsource, but you fail to communicate with your accountant.

So, maybe you have already outsourced your business’s accounting. Are you communicating with your accountant? Does your bookkeeper know what’s happening in your business? Keeping up with all transactions – great or small – and sharing those with your accountant is vital. Overlooking even a small purchase can lead to costly issues over time.

A great way to make sure your accountant is fully apprised of any and all expenditures. Keep receipts and a record of all transactions. You can use receipt tracking software or keep a paper or digital log. Regardless of the method, your accountant will appreciate your efforts. Their job will be easier, and it can save you money in the long run.

4. You don’t record every expense, even the small ones.

This point cannot be emphasized enough. It is essential to record all business spending, no matter how insignificant you think. That $5 of petty cash you took out of the register to send your employee to pick up stamps for the business counts! This is particularly crucial for cash-based (i.e., retail) businesses. No expense is insignificant. This is a fundamental rule to follow for new companies. While it is easy to overlook the small stuff, as your business grows, you will be glad you were attentive because it makes managing your books so much easier. Again, this can be a big money-saver in the long run.

The bottom line: No transaction is too small to record. Save receipts, keep a record, tell your bookkeeper.

5. You assume that profit always equals healthy cash flow.

If you make a sale of $1000 that cost your business $300, did you profit $700? Not necessarily. Depending on the type of business you are in, additional costs could be associated with the sale that reduces the profit. For example, if you’re in retail sales, you must account for expenditures like overhead. What if the merchandise is returned and refunded? Handling the refund costs you money, and that cuts into profit. Suppose you’re in a business that provides services like construction or home improvements. In that case, you must consider setbacks and delays due to receiving materials, weather, etc. Any setback you experience in completing a job means less profit to your firm.

Not accounting for costly setbacks can give you a false sense of how your business is performing. While the numbers may look good on paper, a distorted picture of its financial health is detrimental to your success.

Awareness of these small business accounting pitfalls can help you improve in weak areas and position your business for long-term success and a healthy financial future.

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Contact our accounting professionals now for more help managing your small business finances.

Businesses that end up on the critical list usually show signs that they are ailing long before they need intensive care. By recognizing these signs and making a concerted effort to tackle the underlying problems early on, owners can often turn their troubled businesses around and return them to good health.

Warning Signs

Signs of distress may include:

• Several quarters of declining sales and lower profit margins
• Persistent cash flow problems
• Inability to meet a lender’s requirements for a working capital line of credit
• Declining productivity
• Poor employee morale
• The loss or failure of one or more significant customers

Don’t Wait

Business owners sometimes make the mistake of waiting too long to act on bad news. While a bad quarter or two often can be explained away, a persistent problem shouldn’t be ignored. A business that has previously been on a growth track has all the more reason to investigate the reasons for a downturn promptly.

Get on Firmer Ground

Once a continuing problem is recognized, steps should be taken as soon as possible to curb the downward spiral and stabilize the business. It may be important to update bankers and suppliers regarding the situation and let them know that efforts are being made to turn it around. Open communication can help show that management is serious about reviving the business and can make it easier to enlist help from these groups later on.

Analyze Operations

Decisions can’t be made in the dark. Despite the daily pressures that may only intensify during hard times, it’s important to keep financial records and disseminate key information to management for analysis. Expenses should be looked at in detail to determine which can be reduced or eliminated to improve cash flow.

Declining sales can reflect a slow economy, but a downward trend also may indicate that the business is losing market share. This is not the time to let customer service and quality standards falter. Nor is it a time to ignore the competition. A business that is repeatedly losing sales to competitors has to ask whether it is still in touch with — or has lost sight of — the market’s demands.

Take Action

Once all the groundwork has been laid, it’s time to put the plan into action and start making the necessary changes. This is the point when the owner’s leadership skills are put to the test. It is the time when he or she has to inspire and energize managers and employees to make a sustained, disciplined effort to revive the business and retain the support of suppliers, bankers, and customers.

Matthew J. Rice CPA provides a variety of accounting, tax, and financial services to Charlotte business owners. Call Matt Rice at 704-609-1119 and ask for a free initial consultation today to find our how we can work together for your success.

How can your company attract and retain top employees? It’s not always easy, especially for small businesses. Having a streamlined hiring process and ensuring that your salaries and benefits package are comparable to other, similar companies in your area can help make your company an attractive destination for high performers. Here are some pointers to jump-start your thinking.

Simplify the process. Make sure job responsibilities are clearly described when posting your openings. Candidates should be able to easily ascertain if they have the appropriate qualifications for a position. Also, describe any documentation candidates may need to submit with their applications.

Be open and professional. Let candidates know early in the process, preferably in the job posting or during interviews, how much the position pays. Top candidates appreciate candor about such matters. Treat candidates professionally during every stage of the process — it sends a strong signal about your company’s culture.

Evaluate your benefits package. Compensation and benefits are important factors when it comes to attracting and retaining top talent. Salaries should be in line with what other companies in your region pay for specific occupations. Attitudes toward health and retirement benefits can influence employment choices and how committed and engaged employees are after they are hired. Your company will have a leg up on attracting and retaining the employees it needs to succeed and gain a competitive advantage if it can offer the benefit options top performers want.

If you are unsure whether your current benefits package is competitive, please contact your financial professional. An analysis of your current retirement and insurance benefits will help you identify areas that may need to be improved if you are to attract and retain the best employees.

If you’re ready to fulfill your dream of starting a new business, call us at 704-609-1119 or request a free consultation online now to get started. We work with new business owners in a wide variety of industries.

Before you get involved with other things this summer, schedule a mid-year checkup. No, we’re not talking about the height/weight/blood pressure kind of checkup, we’re talking about the income statement/balance sheet/cash flow kind of checkup — a review of your business’s financial operating fundamentals.

If you review your vital financial information only when year-end rolls around, you may not know there’s a problem until it’s too late. The more often you take your company’s “pulse,” the sooner you’ll be able to notice — and react to — changes in your business situation.

Check Your Vital Signs

What should you be looking at? Start with the operating fundamentals. For example, what’s the status of accounts payable? When’s the last time you ran an aging report for accounts receivable? How quickly is your inventory turning? What is your profit margin?

These numbers are critical to running your business. You can’t make accurate decisions if your figures are old. And, by keeping track of key financial ratios, you can more readily spot trends that should be addressed sooner rather than later.

Monitor Your Budget

Next, check your spending. If overspending is a problem, creating a comprehensive budget that establishes realistic guidelines is an effective remedy. Make sure you have a budgeted amount for every line item expense on your operating statement. Then track and compare actual spending to budgeted amounts on a regular basis.

Reduce Your Debt

Avoid the temptation to take out all your profits in good years. Instead, consider reinvesting some of those earnings in the business. Using retained earnings instead of debt to capitalize your business saves money — and provides a safety net that will be there to help you through periods of lackluster sales or unexpected expenses. A healthy debt-to-equity ratio will also look great when it’s time to borrow money or sell your business.

See a Specialist

Helping owners build and maintain healthy businesses is our specialty. Let’s schedule that mid-year review of your company’s finances soon.

To learn more about financial reviews give us a call today. Our trained staff of professionals are always available to answer any questions you may have. Contact us today for a free initial consultation.