17 Aug 5 Accounting Mistakes SMEs Make
Running a business is never easy. As a matter of fact, it can be quite challenging at times. We occasionally meet business owners that have placed crucial tasks on the backburner and dedicate all their time and their energy in the daily functions of their business. Although day-to-day business operations are critical to the organisation’s success, it is paramount to also take care of some key-points to ensure the smooth running of the business in the long run. Here are 5 of the most common mistakes owners make again and again, which, in most cases, lead to failure.
- Lack of Financial and Business Planning
To know whether you have reached your targets or not, a business plan is more than just a necessity. It allows you to have a deeper understanding of your services and/or products in relation to your target market. What you need is a good business plan that will guide you through marketing- and finance-related matters, as well as investments and HR.
To begin with, you need a SWOT Analysis that should help you identify and also evaluate both the strengths and weaknesses involved in a business venture or project, and the threats and opportunities that come along with it. In addition, a risk management model can be particularly helpful. A risk management model will allow you to evaluate risk and realise whether your business plan’s base expectations are on the right track- doable or not. It is always better to act proactively rather than reactively to risk.
Important Note: A business plan should be constantly updated, considering the fact that the landscape is also constantly evolving. This means that a business plan you made last year may not be right for now.
- Duplication Errors
It is only human to make manual errors. However, when running a business, especially a growing one, these mistakes can be very expensive. With today’s complex regulation and economic instability, you need a robust system to help you eliminate or at least minimise the issues that emerge from using complex accounting and traditional accounting methods. Therefore, a scalable and quite simplistic accounts management system will give you a good chance for organic growth.
- Not Getting Professional Help
Engagement with an accountant throughout the year allows you to access strategic planning and business advice to become more profitable. A knowledgeable accountant that provides a more holistic service can also help you with growth forecasts, sales, succession planning, and cash flow management.
No matter how tempting it may be to just put the books on the backburner, working closely with an accountant reduces time-consuming mistakes and save you from last-minute tax preparations. What is more, getting professional help will also provide you with additional benefits. For example, you can be introduced to online accounting features (i.e. bank feeds automatically coded into the software), that will keep you up-to-date with your accounts faster. Also, an accountant can suggest a decent accounting system to use.
- Not Planning for Tax
If you find yourself shoving your paperwork in a drawer(to deal with later, just stop. Not keeping proper records and leaving everything to the last minute won’t keep your accounts up-to-date. This means that you will have absolutely no idea how your business is performing, and it is highly unlikely you will be able to identify trends in your income-expenditure relation or sales over the course of the year. It would be a pity to realise you have been under-investing in some areas and overpaying or overspending in others, some days before the deadline.
- Non Understanding your Break-Even Point, Ratios, & KPI’s
The break-even point is THE most important number in every business. It is the number that tells you where your expenses meet your revenues (or the point where you gains equal your losses). Many business owners confuse the break-even point with the Gross Profit Margin and Net Profit Margin. However, these two are totally different things. The first is a measurement of an enterprise’s distribution efficiency throughout the production process. It gives you the percentage of sale or revenue left after subtracting the costs of the products you have sold. A Net Profit Margin is the number that tells you your company’s profit per £1 it generates in sales or revenue. Knowing your products’ (or services) profit margin and your overall gross profit margin will allow you to identify high-margin (hence profit making) and low margin items, and products, services, or activates that come with a profit.
Other issues that many business owners face come from not keeping receipts, which means that they can’t keep track of how much they spend and, of course, miss out legitimate expenses claims. If you are running a small business, this could be a fatal mistake. That aside, mixing personal and business expenses is a huge NO. Keep those separate.