Four accounting setbacks to avoid when starting your own business
Starting a new business is a risky move. You open yourself up to the chance of failure. Sometimes failure cannot be helped, but often, failure is a consequence of poor decisions. Failing to keep abreast of accounting is one of the most common causes of business failure – here are some of the most common setbacks.
1. Profit is different from cash flow
Without a healthy cash flow, your business can be stymied. You may be successfully selling your products with good profit, but if your buyers aren’t paying their bills timeously, your business can stall. If you’re not on top of your entries and reconciliations, you can fall into a liquidity trap, and jeopardise your business. Using an intuitive accounting software regularly will safeguard you against catastrophe.
2. Don’t mix business and personal finances
It’s important to remember that while you may own and run your business, the money that it produces should not be considered yours to spend as you like. Personal expenses should be kept strictly separated from business expenses – keep the company credit card for company related purchases. Pay yourself a salary, and make it a habit to systematically reinvest profits. If you take care of your business, extending its capabilities, the rewards will be far greater in the medium to long term. You may find yourself paying for business expenditures from your own pocket in lean times – remember to keep records of these disbursements.
3. Not getting the most out of your accounting software
Modern accounting software provides a wealth of benefits with minimal effort. It would have taken businesses only a few decades ago ages to source and compile financial data regarding the health of their business – today, with Sage, you can have the whole story within moments. As a new business owner you need to be savvy to the data that you need to know. Sage’s ability to track and analyse specific parts of your business can provide you with fantastic grounds for action – you can track budget targets against performance on an ongoing basis.
4. Failing to forecast
Your business’s growth is your top priority. Daily operations will constitute most of your effort. But without a long-term growth path, these efforts, valiant though they may be, may be in vain. Leaning to determine how you have grown, and forecasting how you expect to grow given past growth is a vital skill. Getting to grips with forecasting can provide clear direction about how to direct action, and integrating this information into a business loan application can massively enhance your chances of successfully securing funding.