Accounting is such a broad subject it can feel like a minefield you need to cross to take control of your business.
For many entrepreneurs, its a major concern making them question how much they want to be their own boss. Not having a firm grip on the finances from day 1 can lead to disasters by day 365, but it doesnt have to be such a daunting prospect. This article looks at a few of the common pitfalls entrepreneurs face, to help prevent you making the same mistakes.
This is an extract from the longer, more detailed "Common Accounting Errors to Avoid" booklet. For your FREE copy of this full advice booklet, please email sian@grinteraccountants.co.uk
1. Confusing Profit for Cash Flow
Profit describes the excess income received over costs spent. Whilst an important figure, dont confuse it for the flow of cash through your business or you struggle to pay debts. Cash flow is the physical money travelling through your business whereas profit looks at your financial performance. If you give customers 30 days credit and suppliers demand payment before delivery, you will have a cash flow problem – how will you pay suppliers ahead of receiving payment from customers?
2. Not Planning for Large Future Payments
One thing that catches businesses out is unexpected payments. Whilst there will always be some payments you cannot anticipate, there are others that people just forget about in the excitement of being their own boss. The major ones are taxes - possibly payments youve never had to think about before. Start estimating immediately how much these payments will be and when theyll fall due. Then save this money throughout the year, so you have the cash available when the bill arrives. Ensure your estimate is realistic and prudent. Dont tie up too much money in savings that could be spent on vital day to day business costs, but likewise, dont underestimate the bill or youll continue to have problems with paying.
3. Failing to Delegate
Entrepreneurs wear so many hats that sometimes they cant fit through the door! This is the point where everything can fall apart, entrepreneurs confidences can fail and they end up either ignoring the finances or getting so bogged down in it that other functions suffer. Clearly there are certain tasks you cannot delegate, but accounting is something you can get help with. Paying for an accountant or bookkeeper should be viewed as an investment in the financial health and success of your business, not an unnecessary extravagance. Having someone take away the figures will not only free up your time and reduce stress, someone trained in understanding their meaning can help you identify proactive decisions to help your business grow, adapt and develop, all whilst youre doing what youre good at – running YOUR OWN business.
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