A Necessary Evil For All Business Owners?
For many business owners, “doing the books” is often seen as a necessary evil that must be faced!
The tedious and mundane task of dealing with the financial side of a business can often take up hours and hours of time. This is the primary reason that well over one-half of all small business owners do not keep their finances up to date on a monthly basis.
Financial management, as mundane as it may appear, is definitely not a necessary evil – it is actually your biggest secret weapon when it comes to business management and growth!
It is only with accurate and consistent measurement of your business financials and other key indicators that you can effectively manage and expand your business.
However, whilst financial management is at the heart of a business’s success, many business owners make errors that can cost them significantly. To help prevent you from making the same mistake, this month we share 7 of the most common errors that you want to avoid.
1. Improper or poor record keeping
This is a common mistake for so many businesses. It is easy to lose receipts but maintaining accurate records with a proper system will not only save you time but can also save you serious money when it comes to paying taxes.
HMRC will expect you to produce proof of every item of expenditure claimed from a cup of coffee to a tank of petrol. In the case of a potential audit, accurate records of income and expenses could end up saving you thousands of pounds.
2. Not maximising accountancy software
Manually recording your business accounts is cumbersome, time-consuming, prone to errors and completely unnecessary. A good accounts software package is simple to operate and will seriously minimise the amount of time you have to spend on what is essentially a non-revenue earning chore.
At Virgate Accounts we personally recommend Xero to our clients together with Datamolino. These two amazing tools will seriously transform the ‘financial’ tasks within your business – we love them so much that we include them free of charge as part of our accountancy services!
3. Forgetting to track reimbursable expenses
Business owners often pay for expenses out of pocket or with their own personal credit card then make the mistakes of failing to track these expenses. They then fail to submit the expenses to the company for reimbursement. Make sure you’re not one of them! Create a policy to make it easy for the company to easily and consistently track and record reimbursable expenses.
4. Bad petty cash management
Business owners often operate with a small amount of petty cash, but they have little or no knowledge of how to track it. Be sure to set up a system which allows you to track the cash kept on hand for the business and what it is being used for. Buying a petty cash lock box and obtaining receipts for all disbursements is a great way to start.
5. Improperly categorising expenses
If you or someone you have hired does not have the knowledge of formal accountancy practices, this can become a problem. Accurately tracking income and expenses in the correct categories ensures proper measurement of profitability and can result in significant tax savings, as well.
6. Not reconciling the books with the bank statement each month
An essential part of the accounts process and one that you should definitely not neglect is reconciling the books and bank statements every month. By comparing your bank statements with your accounting records, you will be able to identify and errors, small or large, and detect fraudulent activity if you have employees working for you. If you don’t conduct your reconciliations in a timely manner, you could lose thousands before you even realised it.
7. Wasting too much time
Many business owners try to deal with the accounts and do the bookkeeping themselves. Although they know that time is money, they do not put enough VALUE on their time. Nor do they recognise the benefits (and savings) that hiring professional help will provide.
Leave the tedious and time-consuming task of your accounts to the professionals. We know what to record, how to record it, and most importantly, the accounting changes that affect a business on an ongoing basis. This alone will not only save you money, but will also free up more of your time so you can focus on growth and taking your business to the next level.