Statistics show that over 80% of small businesses fail due to cash flow problems. It’s safe to say that cash flow is essential to success for any business, but for small businesses is even more important, and it’s the line between thriving and floundering or failure. And for the most part, it’s not a sudden issue that brings a business to its knees; it’s the buildup of small habits and failures that have accumulated.
So let’s take a look at some of these financial record-keeping mistakes people make and how you can avoid them.
Mixing Personal and Business Transactions
When personal and business spending coexist in the same account, things get messy fast. There’s no way to realistically track what you’re spending, what belongs to the business, and where the money needs to be to get things paid.
It’s not a good way to operate a business. The fix here is really simple. Separate them. Have personal accounts for personal income and spending, and the same for dedicated business activity. You need a business bank account, business credit card, etc., and you’ll be able to improve record keeping, keep track of spending, and much more.
Letting Expense Capture Fall Behind
Letting your receipts pile up or not logging your invoices when they come in means that down the line, the numbers just won’t add up. Late capture distorts profitability and weakens forecasting, and just causes more problems than taking a few minutes to log them ever will.
You need to shift to a daily rhythm and be meticulous about logging all expenses, so you don’t put them off for another time. Use automated tools, mobile receipt capture, and standardise where documents live. One cloud, one account, no rummaging around places to find what you need. Even a 5-minute end-of-day expenses checklist can prevent things from backing up.
Misclassifying Costs
Something that can catch new business owners out, especially, is not understanding how to classify different costs. Once things are misappropriated, figures become distorted: marketing looks inflated while operational costs look lower than they might be in reality. And this makes all future budgeting decisions flawed as they’re based on incorrect data.
You need a consistent chart of accounts, and you need to define rules for frequent transactions. Travel, software, and subcontractors, etc., should all have a clear and distinct home. You should also review classifications regularly to ensure nothing has gotten mixed up, or so you can create new categories for expenses to be classed under for improved record keeping.
Not Getting Structured Support
At first, most small businesses don’t really need much in the way of financial help. But once you start growing, not getting expert help is going to derail everything. The thing is, there are multiple ways you can get support.
It might be software to help you track expenses and keep everything balanced, or perhaps bookkeeping services that can scale with the business. You can outsource if you wish, use automated systems, or you can hand everything over to a full-house team that manages finances for you. It’s entirely up to you, but not getting the right support will hinder your progress.
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