Accounting is one of the most important aspects of any growing business. Keeping abreast of all the financial developments in your company is difficult but necessary for a lot of reasons. Organization, of course, is key to the success of any accounting department. Even if your company doesn’t have an established accounting department, it’s important to have all your finances organized and recorded. While that’s true, many businesses fall short of the mark when it comes to financial organization. Below, you’ll find a few of the common pitfalls that SMBs make in the accounting arena.
1. Using the Wrong Software
We’re going to make the assumption that if you operate a decent sized business, then you probably use some form of accounting software. If you don’t have accounting software, then you really should. In any event, every businesses’ needs are different. It’s important to opt for the right software to make your accounting more efficient. For instance, if you have to keep inventory (i.e. if you sell products), then you should find a software package that includes inventory management. If your business employs hundreds or even thousands of people, then you need an accounting software that offers payroll solutions. The right software can make your business more efficient and, by confluence, more profitable.
2. Neglecting to Back Up Your Software
If you’re like most small businesses, then your entire financial history is kept safely on a hard drive. Of course, hard drives are prone to failure, and if you don’t back up your software, then you run the risk of losing everything. Invest in an external hard drive or some other form of record maintenance. You can even choose an accounting software that’s based in the cloud like Xero. Xero and other programs like it allow you to organize all your accounting information in a cloud that won’t crash and lose all your data.
3. Not Saving Your Physical Documents
Although accounting software has made it easier to track your financial progress, you may still need to keep physical copies of important documents. Things like receipts, bank statements, bills, invoices, and other vital records should be kept and filed appropriately. This gives you the ability to maintain some of your records even if your software crashes.
4. Not Recording Transactions Immediately
It may be easy to get caught up in the daily grind of running a business. Forgetting to input transaction information into your accounting software can cause a major snafu later on. It also creates an environment where not inputting the information quickly is okay. Anytime you make a transaction you should input it into your accounting software. At the end of each month, you should also compare your records with your bank statements to ensure that everything came out balanced.
5. Avoiding Budgets
One of the issues that many small businesses face is a lack of proper budgeting. Creating a budget for a project or an objective allows you to work with the confines of that monetary cap. Without a budget to keep you grounded, you may end up overspending by leaps and bounds. Budgets help keep your business organized, and they also provide a great way to make projections for the future.
6. Estimating Blind
Many businesses tend to make estimates based on some ephemeral expertise. For instance, you may delegate all your estimating duties to a person with 30 years of experience in the industry. While the experience helps, it doesn’t provide any know-how from an accounting perspective. It’s important to get a clear understanding of each job or project. Accountants can take a look at these projects on an individual level using facts and figures. This allows them to come up with a better, broader estimate that you likely could not have come up with on your own.
7. No Accounting Team
As businesses grow, the option of hiring outside accountants to take care of your finances becomes less and less attractive. Once you get to a large number of employees, an accounting team may be necessary. Although it might not seem cost-effective to hire a new set of hands, the improved efficiency you’ll gain will more than make up for it. A dedicated team whose only job is to ensure the organization of your expenses, income, accounts received, and accounts payable is invaluable.
8. No Controller
Again, as a small business grows, the need for more accounting oversight becomes readily apparent. A controller is essentially one step ahead of an accountant. They will be able to manage your accounting team, improve cash flow maintenance, and generally provide a genius-level knowledge of accounting for your business.
Good accounting is clearly a valuable asset for any small business. Maintaining records and having the right staff can make all the difference for both your efficiency and your bottom line.