Starting a business is easy but maintaining it is all together a different thing. To run a successful business one needs to possess experience in various business functions. For example, production of products, distributing them and creating marketing strategies are just some the many tasks required to run a successful business. With all these tasks, accounting also plays a very important role. Managing financial records throughout the year is essential in keeping your business focused and also helps during tax time.
A good accounting system may be the difference between earning considerable profit in a small business and actually having financial losses. Reports suggest that about two thirds of business start-ups last for just two years and only 44 percent are able to sustain for just four years. Poor maintenance of accounts is one of the main reasons why small business fails.
Here are a few common accounting mistakes that lead small businesses to failure.
1. Not Staying On Top Of Receivables
Whenever you issue an invoice, a receivable is recorded – this means that the customer to whom you have supplied the order owes you money. Not keeping track of, and managing the receivables, causes cash flow problems that can eventually result in business failure.
2. Not Keeping Expense Receipts
Another important thing that can result in business financial difficulties is not keeping track of expenses properly. Many times what small business owners fail to consider is that apart from just buying raw materials, there are many other crucial expenses. For example, transport costs or office rent. These are essential overheads that should be considered before setting a selling price of a product and to do that you need to keep track of them.
3. Failure to record cash expenses.
It is very important that all the expenses are recorded to calculate the appropriate profit. While it’s easy to calculate the amount of payments processed by using banking facilities like credit cards or debit cards, failure to calculate cash expenses can lead to big losses depending on the nature of the business. At the very least, not recording cash expenses can cost you dearly by not claiming tax deductions to which you are entitled.
To efficiently maintain these records without any error, using computer software is highly recommended. This software can be very helpful in managing the accounts of your firm and also helps in accessing historical information.
Stay tune for our next post on ‘accounting software’ coming soon.