When you decide to start a business, it is important to remember it is all about the budget. While losses and slow starts are common for nearly every new business, it is crucial for the business's bottom line to be positive if you want to maintain a healthy long-term financial position. Many small businesses make a variety of mistakes in regard to their business's financials, allowing their hard earned money to go to waste. One common mistake that many small business owners make is failing to track every expense, even the seemingly trivial one for $5. They believe that $5 is not worth the time and effort of tracking the expense, but failing to account for every $5 expense will add up over the course of a month or a year.
The accounting mistakes made by owners of start-ups are:
(1) Overpaying taxes: Every business has a legal responsibility to pay taxes, but some businesses overpay because they fail to understand the complex tax system and the credits and deductions available.
(2) Blindsided by the revenue above the line: It is important to focus on the bottom line, after expenses are taken out of the gross receipts. The success of your business depends on its ability to general positive cash flow, not record substantial gross receipts.
(3) No safety net: A business's cash flow will fluctuate over time, and new businesses do not have the benefit of financial data from prior years to track income trends. Accordingly, it is very important to have savings for when cash is tight. If possible, try to maintain an account balance that is equal to two months of operating costs. This account balance will give you enough time to turn things around.
(4) Impulse spending during startup: Be aware of the money you are spending to get the business up and running. Ask yourself if you really need the custom desk or the fancy coffee maker. The more money you spend up front, the more you eat into your profit margin and the longer it will take for you to break even.
(5) Confusing what it means to be productive: Money is made through effective work. Working yourself ragged is no way to achieve efficiency. Take the time to identify issues and find a way to correct them. For start-ups and entrepreneurs, time spent identifying and preventing issues early in the life of the business is an investment that will save hundreds (or thousands) in accounting or legal fees to fix unaddressed problems later.
No matter if your business is brand new or a mature company, A to Z Accounting Services can ensure that your accounting and financial reporting systems are working to keep your business healthy, giving you time to do what you really want—run your business. To learn more about how A to Z Accounting Services can assist your business with its accounting needs, click the Contact tab to schedule a consultation.