It’s been said the most common reason for business failure is undercapitalization. And even if your small business starts out with adequate capital, failing to manage your finances properly can hamper your growth and ultimately destroy your business. What are the most common financial mistakes your business may be making?
Online accounting software company Xero asked accounting professionals what their clients’ most common financial errors were, and here’s what they said:
Don’t make these common mistakes. Here’s what you should be doing:
Get digital. If you’re still doing your books on paper, now is the time to upgrade to a computerized accounting system. Look for one that lets you generate real-time reports and provides “dashboards” where you can see your business’s financial performance at a glance. Consider putting your finances in the cloud, as 67 percent of business owners in Xero’s survey do—that way, you and your accounting professional can access your data anytime, anywhere.
Measure and monitor. Don’t just input your numbers and forget about them—use them to monitor your performance and assess whether you are reaching your business goals. “Look at your company’s financial performance regularly and use backwards-looking financial statements to project forward revenue, expenses and cash flow,” one accounting professional told Xero. “You can’t manage what you don’t measure. Having this knowledge will help you make better decisions.”
Plan ahead. You should also use your financials to project and plan for the future. “It’s important to live in the now, but as a business owner you need to be thinking about, and planning for, the future. If you’re not looking five to 10 years ahead, you are behind the competition,” another accounting professional told Xero.
Harness your accountant’s expertise. Your accountant can do more than just help you cut your tax bill at tax time—he or she can also help you plan the direction of your business and advise you on a raft of daily decisions, such as whether it’s better for you financially to hire employees or use independent contractors; the best time to invest in new equipment or systems; and the best options for finding capital for your business. In addition, your accountant should be a vital part of the equation when you make long-term decisions such as taking on partners or investors, planning for succession, getting ready to sell your business and much more. If you’re only talking to your accountant once a year, you’re selling your business short.
Of course, you should also be harnessing the expertise of your SCORE mentor, who can help you find the perfect accounting system for you (or even the perfect accountant). Don’t have a mentor? Visit www.score.org to get matched with one and start getting your finances in order today.