When you are a small business owner, managing your company’s finances on your own is not easy. It can be challenging to come up with a financial plan and implement everything perfectly and accurately. It is normal to make accounting and other money mistakes every once in a while, especially since you are a business owner who has multiple other responsibilities.
Small mistakes happen and it is important to note them early on. Small mistakes can accumulate into bigger errors and it can impact your bookkeeping if it is not fixed immediately. It is important to identify and understand the accounting mistakes to improve your company’s financial stability and your own planning skills. This can assure potential investors that you are careful, and you will not be wasting their money.
The following is a list of small business accounting mistakes you should avoid in the future.
Avoiding Outside Accounting Help
You might already have some knowledge of managing your expenses and your own revenue. However, at some point you will need to consult the services of an accounting professional. If you start to make significant accounting errors, it could end up costing a lot more.
Relying on Your Intuition
Being an entrepreneur means you have relied on your gut and intuition and took some risks. When it comes to your company’s finances, it is best not to assume anything and stick to the facts. A mistake that you could make is to trust that everything is under control because the number look good. However, it is important to see how much money is going out.
A system that can track revenue against expenses to project monthly cash flow is necessary. It is critical to monitor daily cash flow in the early stages of your business. You can use Excel to set up a cash flow management system to help you record your business expenses.
Forgetting to Balance Bank Statements
When you are managing your business, you need to keep your files in order and be as organized as possible. You and your finance team should always save receipts even those that seem meaningless. This will help reconcile your books or account for expenses.
It is essential to balance bank statements by cross-referencing your accounts with statements you receive from the bank. Also, when you do transaction with vendors you should follow up if you notice any discrepancies.
Forgetting to Assign a Budget Before Starting a Project
Sometimes unexpected things happen when you start a project. Unpredictably can affect the budget of the project. If you do not assign a specific budget for it, it can become a problem in the future.
You can allocate the appropriate value to a project so that if you foresee an issue you can reassess everything and solve the problem quickly. It is best to find solutions to issues and analyze what went wrong before expanding the budget.
Hiring Too Quickly
Employees are a great asset to businesses but having a large staff can mean high expenses. A big mistake startup make is hiring too quickly or having bad hires. Sometimes startups grow at a slow rate, so if you have hired too many people then you might need to lay off some people. Having bad hires is another common mistake. You need to hire employees for their potential and think in long-term.
Failing to Understand Target Market
It is important to understand the nature of your target market. You may end up mispricing your products and services if you do not. Consider your market position and the value of your offering. Then start with the price and go backwards.
Miscalculating Your Cash Burn
Another factor to keep in mind is your company’s financial burn rate – or the capital that goes through every month to maintain your business. Create a projection of your monthly burn rate by using real-world numbers.
The Bottom Line
Making money mistakes can be avoided if we become wise with the amount of capital that goes through every month to maintain your business. Mistakes will become a solid foundation for your future transactions and projects.