Death of a Small Business: 5 Accounting Mistakes to Avoid
Small businesses are the backbone of local economies and the organizations that face the most competition; which means they are also the most difficult to keep afloat.
According to the Small Business Association (SBA), at least 30% of small businesses tend to fail in the first two years, and as time progresses to the five- and ten-year marks, the likelihood of closing one’s doors becomes even more significant (at least 50-60%). These statistics have remained steady over the years, as have the primary causes for most new businesses failing.
It is believed that most new businesses fail particularly due to poor leadership, in which leaders have not made essential decisions in an efficient amount of time. This is not to say that the success or failure of a business is due to having leaders without leadership capabilities, but rather reflects the understanding that business development requires a minimum amount of balance, and leadership can only be attained through experience.
After all, starting a new business comes with its inevitable difficulties, including managing new clients, projects, partnerships and stakeholders, and accounting needs. Chances are that as an entrepreneur you started the business with an innate understanding of your field and a sense of confidence in managing your employees, project accounts, and community relations. What you may not have anticipated, is your small business’ accounting needs.
While you may be thinking, “It’s no big deal, I’ll just learn the ins-and-outs of financial management as I move forward,” the truth is that such an idea could become your first major mistake. To ensure that your business will succeed after one, two, five, ten years, and beyond, Accounting Girl is here to save the day in helping you recognize what accounting problems could be the death of your small business.
Mistake #1: You think proper financial management will be quick and easy to learn.
Sure, there is a wide-range of accounting software available these days, in addition to libraries full of books on financial management, but taking such an approach is likely to be sloppy. Before you start your new business, it is essential that you have a strong, basic understanding about bookkeeping to tackle the initial elements of your accounting needs. In fact, before you even begin the hiring process, it is important for you to have a grasp of what your business’ specific accounting needs are and if you will have the skillset and/or time to deal with your expected volume of clients. From there you can decide what technical solutions would be best for your business and determine if you need to hire an accounting professional.
An accounting consultant can help you determine what accounting methods are best for your business, and remove some of the major stresses associated with juggling a new business and its specific, on-going accounting needs.
If you are deciding whether your small business is ready for an accounting consultant, here are the top signs you should be looking for. Or, not sure if your business needs an accountant in the first place? Click here to find out today.
Mistake #2: You don’t believe that financial reporting is all that important
It may be ideal to think that you can easily hold off on dealing with managing your financial accounts, even for a short while, but procrastinating on the inevitable is likely to lead to accounting confusion and mistakes that could have otherwise been avoided or easily solved. Secondly, having your financial accounts properly managed will ensure that you know how your company is performing in real time and depict what changes need to be made in order to meet your business plan’s short- and long-term objectives. Finally, financial reporting is essential to ensure that your business is keeping up with intergovernmental requirements and end-of-the year taxes, so that you do not end up facing end of the year stress, potential penalties, or in the case of a federal tax audit.
Click here to learn more about why financial reporting is essential for small business success.
Mistake #3: Your system isn’t consistently organized for long-term success.
Speaking of business plans and goals, financial reporting is not only a necessity overall, it is equally important that all things accounting remain consistently organized. Having a system in place ensures you with a peace of mind knowing that you know exactly where your business sits financially, where it is headed, and prepare you for any issues that may come up unexpectedly. In order to keep yourself accountable, it is always recommended that you hire an accounting consultant to have everything kept up-to-date both efficiently and correctly, and/or perform regular audits to remain consistent in interpreting, analyzing and reporting all financial decisions and interactions.
Want to learn more? Here are the top reasons why you should be considering long-term growth strategies for your business.
Mistake #4: You hire an accountant that doesn’t understand your business’ specific financial needs.
Different types of businesses have different types of financial needs. For instance, a law firm has a specific need for properly managing IOLTA accounts for their clients; which comes with it’s own set of rules. This means that it is always best to do your research before settling on an accounting consultant, to find someone that is both fluent in the world of accounting and who has a strong understanding of your business’ jargon and unique accounting needs. Plus, it is also good to ensure that your accountant is working to not only manage your business finances, but is also helping you restructure or realize future strategies that will increase your future profitability.
Are you a small business attorney? Click here to find out more about how you can create a strong attorney-accountant relationship.
Mistake #5: You hire an accountant, but you remain inconsistent in keeping up with your own bookkeeping responsibilities.
Last year, we told you about all the questions that will drive your accountant crazy. What all of those questions conclude is that those individuals do not automatically keep their own records up-to-date. What does that mean? It means that even though your accountant has been hired to do all the nitty-gritty hard-work, it is still vital for you to keep your own bookkeeping system to stay on the same page, and more so that you are mindful of what business-related items you need to keep (e.g. receipts for expenses and charitable donations, mileage logs and gas receipts, records of updated fees, etc.) and keep track of (e.g. previous year’s accounting and tax records, regulations and policies, business expenses you aim to write off at tax season, etc.). If this is something you struggle with, Accounting Girl would be happy to give you recommendations to ensure your small business will grow according to plan.
Has your small business run into these accounting villains before? Tell us on Facebook what types of accounting mistakes you have learned from and how Accounting Girl came to your rescue!