21 Oct 2021
The problem with accounting is that even the smallest of mistakes can eventually compound and become a giant problem. In fact, it usually takes far more time to correct an accounting error than to get it right in the first place. With that in mind, we’ve put together a list of the six most common accounting mistakes for small business owners to avoid.
- Failing to Create a Business Budget
As a business owner, it’s your job to steer your company towards profitability and this is very difficult to do without a budget to keep your bottom line in check. Creating and regularly reviewing a business budget reduces overspending, helps to create realistic financial goals and provides a benchmark against which to measure your progress. It essentially functions as a roadmap. Without it, you may soon find yourself lost.
- Ignoring Accounting Procedures
It may not be your idea of fun, but it’s important to set up formal procedures for managing accounting and bookkeeping tasks within your business. It’s a good idea to create standardised forms to ensure consistency across the board. This will ensure that your information stays accurate and avoid problematic gaps in your records later on.
- Missing Data Entry Errors
In an ideal world, there would be no data entry errors to miss in the first place. Unfortunately, as it is, it’s impossible to completely prevent data entry mistakes. What you can do, however, is perform reconciliations regularly so that you catch said errors as quickly as possible, before they start to cause bigger problems. Make a habit of reviewing unusual transactions, too.
- The DIY Approach
As a business owner, you wear many hats and it’s only natural to want to do everything yourself but this approach is neither profitable nor sustainable. Your time is an important resource, so wasting it on low-value tasks that you could easily outsource is not conducive to business growth. Outsourcing these tasks will free up your time and allow you to focus on generating more revenue. Furthermore, it’s often prudent to outsource to those with more expertise than you. Tax accountants, for example, undergo years of training and are far better versed in the intricacies of tax law than you are. Therefore, outsourcing tax planning and preparation is a very smart move for the financial health of your small business.
- Not Backing Up Accounting Software
Ask any IT expert and they’ll tell you that backups are essential; you never know when disaster could strike. Backing up your data could save you a huge amount of time and money in the event that your data is lost or corrupted. Fortunately, many cloud accounting programs allow you to create automatic backups at regular intervals. You should also double-check your backup files regularly to ensure that they are in good working order.
- Shoebox Accounting
If your small business has more than a few small transactions each year, then the shoebox accounting method is a very bad idea. It’s important to stay on top of your accounts and keep a careful track of all of the funds that enter and leave your business throughout the year. Fail to do so, and submitting your tax return will be a nightmare. You may even end up paying more than you need to. Investing in accounting software and seeking the help of a professional accountant are smart moves that will greatly improve the financial health of your business.
Summary: Think Long Term
Business is a long game and it’s important to retain this mentality when it comes to accounting, too. It pays to be prepared and plan ahead; shoebox accounting and leaving things until the last minute will only land you in hot water. By avoiding the above six accounting mistakes, you can save your business both time and money, and get back to focusing on growth.
14 Oct 2021
Pretty much everything is stored in the cloud these days: your photos, your credit card details and even your step count – so why not your accounting, too? Accounting software can free up a significant chunk of your time and help you keep more accurate financial records, both of which represent big wins for your business. If you haven’t switched over to the cloud yet, here’s why it pays to move with the times.
What is Cloud Accounting?
Cloud accounting is accounting software that works over the internet rather than storing data and programs on your computer’s hard drive. Cloud based software has disrupted and transformed many industries, and accounting is no different. Besides, it’s here to stay and so the smart thing to do is adapt and use the power of the cloud to your advantage.
Is the Cloud Secure?
Understandably, one of the biggest concerns business owners harbour regarding the cloud is its security. However, the cloud is actually more secure than traditional hard drive storage. For one thing, your computer is susceptible to physical damage, such as spillages, fire and electrical faults, not to mention loss or theft. If your computer is destroyed, cloud accounting software ensures that you’ll still be able to access your data from another device. Most cloud accounting options provide strong protection for your sensitive data and use secure solutions such as encryption to make sure that your accounts stay safe. It’s much more difficult for a hacker to infiltrate the cloud than it is your laptop – and easier to recover your data too, thanks to automated backup solutions.
Flexible Working
The cloud enables you to manage your accounts from anywhere, on any device. As a business owner, this permits you to lead a more flexible lifestyle. For example, if you need to update your accounts over the weekend, cloud software saves you the trouble of having to drive into work to access your office computer.
Real Time Updates
Cloud software ensures that all parties will be able to access the very latest data, streamlining communication and encouraging more efficient collaboration. Real time updates save a lot of time and, as a business owner, being able to access your financial data instantly allows you to identify potential problems quickly and fast, informed decisions.
Automated Processes
Accounting is a notoriously time-consuming process. However, cloud-based software can automate many complex tasks for you, making you a lot less likely to need those headache tablets you’ve got stashed away in your desk drawer. Furthermore, by freeing up time, cloud accounting software allows you to focus on client generation and business growth, allowing you to scale up rather than get bogged down in complex calculations. Like money, your time is a valuable resource and you should always be looking for ways to save so that you can re-invest elsewhere.
Reduced Costs
Traditional accounting software has many hefty costs involved, such as maintenance, regular upgrades and system administration. These processes take up a lot of time and can get in the way of running your business. With cloud-based software, however, upgrades are free, automatic and won’t take a chunk of time out of your day.
Easily Scalable
Rapid growth can present an array of issues for a business. When you use traditional accounting software, it can be difficult to scale up at the same rate at which your business is growing. Cloud programs, however, present no such issues. It’s simply a case of levelling up your subscription to cope with increased transactions.
Summary
Cloud software makes accounting an infinitely smoother process, thus saving your business both time and money that you can reinvest in growth. Furthermore, cloud-based programs permit you to work remotely, allowing you to run your organisation with greater flexibility. Real time updates allow you to stay up to date and put you in control, whilst automated processes and calculations reduce human error and save precious time. The days of USB sticks are well and truly over; cloud accounting is the way forward.
4 Aug 2021
Are you wondering why your revenue and profit seem to be on a decline? It’s not always about the number of clients. Losses in business are fairly common. But some business owners tend to attribute them solely to inefficient sales and marketing. However, that’s not the only way a small company can lose money. Here are some of the lesser-known reasons why your bottom line may not be as high as you’d hoped it would be.
Not Negotiating with Vendors
Vendor costs directly affect a company’s profit. And a good deal with a vendor today may not stand up to the test of time. An internal audit and market analysis can indicate whether a company is paying vendors above the market average. Also, there may be vendor-related expenses that you may be overlooking.
Bad Pricing
It’s vital to get the pricing right to maximise profits. Both overly high and low pricing can put a dent in a small business’s revenue and profit. Customers and clients have to feel like they get great value in return for their payment. If a company is not making enough money, it’s often a good idea to evaluate the pricing strategy.
Accounting Issues
It’s customary for small businesses to handle all the accounting in-house. But it’s also common practice for them to pick an accountant based on the most attractive offer, never mind the accountant’s experience or the value they bring. However, poor accounting practices can lead to losses. Whether it’s the handling of expenses, tax, invoices, or something else, questionable accounting can bleed a small business dry.
Not Investing in the Business Investing is an essential driver for growth. No companies can scale without re-investing some of the profit. There are various ways to put your money to good use, such as:
- Marketing to new customers
- Hiring better employees
- Expanding the online presence
- Improving services and processes
Small businesses that don’t put money into these things will have problems sustaining growth.
High Employee Turnover Rate
Careful analysis of the workforce can uncover insights into why a small business is losing money. Employee turnover is always costly, what with the money spent on training and the break in continuity. In contrast, offering more competitive wages can work out better in the long run. It can help secure good employees, boost morale, and save costs.
Avoiding Outsourcing
It’s not necessary to do all the work in-house as many accounting, marketing, advertising tasks can be outsourced. The benefits of outsourcing are not limited to big corporations either. Outside help may represent cost savings at the same level of expertise or more. Of course, this is not to say that you should just outsource everything. It’s just an option worth evaluating.
Bad Resource Management
One often overlooked area is resource management. Besides time and money, resources such as printer paper, office supplies, and software can affect the bottom line. Overpaying for stuff and theft can lead to unwanted expenses.
Evaluate Your Business More Often
It’s critical to have a good handle on all of your company’s systems and processes. Even something as minor as the wrong software can create financial trouble.
28 Jul 2021
Every business owner must know where the money in their company comes from and where it goes. That’s why financial management is one of the most important things to keep in mind. What is a business budget? Simply put, it’s a financial plan that gives a company relevant information on revenue, expenditure, and capital. Business owners also use them as guides to forecast earnings and expenditures and perhaps to hold someone accountable for mistakes and such. If you want an accurate budget estimate, follow the six steps below.
Step 1 – Estimate Fixed Costs
The first step is to figure out the fixed costs, which is relatively easy. Simply list all expenses and then identify those that show repetitive costs that don’t change by the month. These include expenses such as rent, equipment leases, insurance, manufacturing costs, etc. Add up all the fixed costs to get the number and use it for a period of 3, 6, or 12 months.
Step 2 – Identify Variable Expenses
Variable expenses are those that are not constant – the complete opposite of fixed costs. Although it’s easy to identify variable expenses, it’s harder to forecast the numbers as they vary every month. To identify and get an accurate prediction of variable costs, it’s critical to record and tally them for a period of time. You’ll soon get an average number of each variable expense.
Step 3 – Work Out One-Time Costs
Most businesses also have one-time expenses. And although it’s not nearly as frequent as fixed and variable costs, a business budget wouldn’t be complete without accounting for the “sunk costs”. Buying new software or equipment are examples of one-time costs, so is something like getting new furniture for the office.
Step 4 – Project Your Revenue
The next logical step is to project your future revenue. After all, one of the reasons to build a business budget is to have something that would allow business owners to compare actual and projected revenue. This particular step allows for the setting of clear goals and understanding how to meet those objectives.
Step 5 – Track Profits and Losses
Figuring out the net profit margin is another necessary step. You can do this by deducting expenses, taxes, and any accrued interest from revenue. The money left over, as a percentage of revenue, indicates the net profit margin. This is a key indicator of profitability and can help highlight issues in cash flow, management, marketing, operating costs, and other areas.
Step 6 – Adjust the Budget
No one should see a business budget as set in stone. It’s because the changing market trends, consumer demand, and other factors can influence the budget. Therefore, the final step is to make the necessary tweaks. A business budget is not static but rather a flexible estimation. By tweaking the budget, you can position your company to adapt to exterior changes. It can also help in changing goals or diverting funds towards meeting the most important objectives faster.
Final Words
Remember that having a business budget is not enough to ensure financial stability. Every business also has to set up an emergency fund with the budget as a guide. Continually revisiting the budget is a must. And failure to re-evaluate can affect the company’s financial health and lead to overspending in all the wrong places.
21 Jul 2021
Choosing a great accountant is one of the best investments you can make for your business. A quality accountant can do much more than save you money on your tax bill – although of course, that’s important too. A professional accountant is a strategic business partner who can provide shrewd insight into your financial situation and offer valuable advice that will guide you towards success. They will serve as an advisor who can help you reduce tax liability, create business strategies, drastically improve your cash flow management and highlight growth opportunities that you may be missing. So how do you go about finding the best accountant possible for your business? We’ve put together a guide to make things easier.
Internal vs External
Many small businesses opt for an external accountant which gives them access to expert support and guidance, without the costs of hiring a full-time employee. Another perk of hiring an external accountant is that you can scale their services as your business needs grow and change. However, it may be worth considering an in-house accountant if your transactions are extremely large and complex as this could prove to be a more cost-effective choice.
Consider Going Virtual
Nowadays, thanks to the popularity of cloud based accounting software it’s no longer necessary to hire an accountant based on their proximity to you. It’s also entirely possible to remotely maintain a personal relationship with your client thanks to video conferencing software. This gives you more freedom to choose your accountant based on quality rather than location.
Industry Experience
Consider your prospective accountant’s speciality before hiring them. It’s worth hiring an accountant with relevant industry experience because they will have a detailed knowledge of the market and your specific business needs. They will also be able to use their acumen to avoid common problems and pitfalls within your industry and employ proven systems to do so.
Personalised Service
One of the many drawbacks of cheap accountants is that they serve thousands of clients at once, so you don’t receive the benefits of a personalised service. You’ll be lucky if they remember your name, let alone go the extra mile to meet the specific needs of your business! As a business owner, you have specific concerns, pain points and aspirations. You need an accountant who not only understands these, but works hard to find solutions. Look for an accountant who is keen to have a conversation to learn more about your needs and then tailor their services to suit your requirements. Accounting is not a one-size-fits-all approach and a high quality accountant understands that.
Prepare Questions
Of course, you’ll want to talk to your future accountant before hiring them. It’s a good idea to make a list of what’s most important to you and prepare questions accordingly. A quality accountant will function as a business partner and mentor, and therefore it’s important that you find the right fit. As well as basic questions like price, certifications, software and services, think about:
- What is their idea of a positive client relationship?
- How can they help you to grow your business?
- How often should you be in touch?
- What are some special considerations for your specific industry or business model?
Summary
Overall, a great accountant is someone with whom you can completely trust with your financials. As well as the above considerations, it’s vital that you listen to your gut when seeking a high quality accountant. This is an important investment in the financial health of your business that should not be taken lightly. Many business owners see accountants as number-crunchers, but the truth is that a successful relationship with your accountant will be a personal one, too. Your accountant will be a partner and guide, so you must establish a healthy and trusting relationship. When this is the case, the money you spend will be a drop in the ocean compared to the money you save and generate thanks to their services.
7 Jul 2021
New processes that aren’t yet proven within a company need to be handled with care. Documenting them is the best way to keep track of aspects that work right and those that don’t.
Process documentation can help you understand the effectiveness and if your processes require some adjusting. A functional business process should be easily repeatable and reduced to the smallest number of steps to benefit company efficiency. When it comes to automation, well-documented processes will be much easier to translate. However, documentation can take up significant time and effort, which is why the following steps will prove quite useful.
1. Define the Process
Naturally, the first step in documenting a process is precisely defining its purpose and the benefits it brings. You should have a clear idea of what the process will bring to the table, how it will be used, and when it will be necessary. Once you’ve defined those essential aspects, name the process so that its function is evident from the title.
2. Determine the Scope and Boundaries
There should be an outline of everything that falls under the process and what’s excluded. The lines that define the scope of a process are sometimes blurred, which is why it’s crucial to make them as well-defined as possible. Your process’s boundaries will further specify the details of the project’s scope. That’s why you should define the start and end points and signals according to the previously outlined aspects.
3. Define the Expected Results
It’s not enough to broadly determine what a process should do. You should also have particular results in mind and precisely explain what the process should produce. When it comes to expected results, being as exact as possible will be essential in future testing and provide valuable insight for adjusting and optimising.
4. Identify the Resources
Once you know what a process does, what it entails, and what results it should produce, describe every resource necessary to get the expected result. Make sure to note the primary and secondary resources and fill out the list with additional entries according to individual steps.
5. Plan and Organise the Steps
Discerning all necessary steps will require careful examination with a focus on functionality. Either start from the initial process trigger or the endpoint and work out the sequence step by step. Once the steps are clearly defined, re-examine if each step is indeed necessary and follow each other in the best possible order.
6. Determine the Responsible Personnel
Note which person will be responsible for what task, referring to them by job title. Make each individuals role clear and understandable, leaving no room for different interpretations.
7. Predict Exceptions
Note every conceivable situation that could deviate from the process and specific tasks and outline the steps to take in such cases. Of course, it might be impossible to think of everything. But the more exceptions you predict, the easier it will be to address them and adjust the process.
Make Your Process Well-Documented
With clear and detailed documentation, your processes will be understandable for everyone involved and easier to automate. While it’s necessary to devote time and attention to documenting each process, following these steps will make the task more straightforward and future revisions more accessible.
