If there is one thing most startup failures have in common, it is financial difficulties. One of the main reasons why businesses fail is because they run out of money. We don’t want this to happen to you, which is why this blog post presents a collection of useful tips that should assist you with the financial side of your company.
THE ACCOUNTING RISKS THAT PUT SMALL BUSINESSES AT RISK
There is no denying the fact that accounting is one of the most crucial areas of any business, no matter how big or small or what industry you operate in. Accounting errors can put your business at a significant risk, which is why it is so important to have effective procedures in place. Here are five common mistakes that a lot of small business owners make…
1. Ignoring cloud technology and/or software
One of the biggest mistakes made by small businesses is using out-of-date methods of accounting. A lot of companies are still handling their accounts via paperwork, whilst some are making use of the most basic computer programs. Nowadays, you have a great selection of advanced accounting programs that are available to you. You can even have bespoke software created so that it is tailor-made to suit your business’s requirements specifically. This gives you the ability to automate budgeting, payroll and such like and thus you will enhance efficiency and accuracy significantly.
2. Mixing business and personal finances
If you use one banking account for both personal and business finances you are pretty much assured to make a mistake. The first thing any accountant will tell you is that you need to set up a business account and keep things separate. This is especially beneficial when it comes to tax and you need to record any deductibles.
3. Viewing profit and cash flow as the same thing
A lot of people assume that cash flow and profit is essentially the same thing, yet this is not the case. Profit is what remains from your revenue when you have deducted all of your expenses, whilst cash flow is the money that comes in and out of your business from investments, financial activities and other operations. You need to stay on top of both, as even a profitable company can go broke if they do not have the cash flow readily available to deal with their expenses.
4. Trying to handle everything in-house
Most small businesses will not have the capacity to handle their accounting commitments in-house. You may want to try and cope with this yourself, but you need to recognise that you cannot handle everything on your own. Because accountancy is so vital to the success and longevity of your business it is certainly one of the areas that are recommended to outsource. After all, your time and your employees’ time is valuable and it should be spent on the core of your business, i.e. what makes you money.
5. Going down the cheapest route
Many companies ignore the possibility of paying for fixed fee accounting services because they deem it an unnecessary expense, whereas others simply go for the cheapest accountant they can find. However, you will only end up costing your business more money if you make accounting errors. You get what you pay for when it comes to this service and, therefore, you certainly should not cut any corners.
KNOWING WHEN TO OUTSOURCE AND WHEN TO KEEP THINGS IN-HOUSE
Of course, deciding whether to outsource or keep things in-house will have a massive impact on your finances. Unfortunately, there is no magic formula. You need to work out what is going to be more cost effective for you. You can do this by asking yourself a number of questions.
1. Will it be cheaper to outsource?
You need to look at expenses over a period of time, for example, a year. Outsourcing can often be more expensive to begin with but overall it works out more cost-efficient.
2. Do you have the talent in-house?
Outsourcing is usually the wisest when you need to tap into skills you don’t currently have. This is why IT managed services like Throttlenet is popular for businesses. After all, if your IT was to fail, your business would go offline. If you cannot get back online as soon as possible, you are going to severely hurt your brand image and your bottom line.
3. Do you need this service consistently or only during specific periods?
Outsourcing can be a good way to deal with busy moments, for example, meet seasonal demand, or to carry out tasks you are not going to need to do all of the time.
4. Is it a core activity?
One thing you should most definitely never outsource is a core business activity. You should outsource activities that drain your time but are not your profit-making core activities.
INVOICING TIPS TO HELP YOU MAINTAIN A HEALTHY CASHFLOW
Invoicing is a pivotal process for all businesses, but arguably even more so for small businesses, as thorough invoicing procedures and prompt payment are essential for cash flow and growth. One of the biggest mistakes a lot of companies make is failing to have a stringent and successful invoicing procedure in place. Of course, you cannot control your clients and when they will pay you, however, you can increase the chances of everything running smoothly by handling things the right way. Keeping that in mind, continue reading to discover some top invoicing tips for small businesses…
1. Alter your payment terms
Research shows that on average invoices tend to be paid two weeks late. Therefore, it is a good idea to alter your payment terms taking this into account. So, if you intend to be paid within 30 days, you should probably make your payment terms two weeks or so less.
2. Keep your invoices simple
There is no need to overcomplicate your invoice. Make sure everything is laid out in a professional and straightforward manner. You can download an invoice template if this helps. Include all of the required details, such as date, payment total, bank details, contact information and such like, but don’t overcrowd the invoice with details that are not needed.
3. Present several payment options
You should make it as easy as possible for clients to pay you. Present them with several different payment methods for them to take advantage of. As well as direct bank transfer and cheque, why not offer the option of a PayPal payment? This allows you to accept the payment instantly, which is always beneficial. Another option to think about is accepting payment in alternative currencies, with Bitcoin being a prime example. Of course, this will not work for everyone.
4. Don’t forget your VAT number
All good accountants will tell you how vital it is to include your VAT number if you are registered for VAT of course. Whenever you supply services or products to another company that is VAT registered it is imperative to give them a VAT invoice, which means you will need a unique invoice number and your VAT number.
5. Keep to your end of the bargain
How can you expect your clients to pay you on time if you do not provide the work they have asked for on time? Of course, it is a cycle – If someone does not pay you on time, you may experience cash flow issues, which can then cause you to delay in delivering work. Nevertheless, you should do all in you can to avoid such situations.
6. Communicate with your clients
Last but not least, if you are struggling to get the money you are owed, then you should increase communication with your clients. A simple email reminder may do the trick. However, it is always a good idea to pick up the phone and give them a call, as reminders from a real person are much more persuasive and effective.
So there you have it: some useful tips that should help you with the financial success of your small business. If you follow the advice that has been presented above, you should go a long way to ensuring your business not only survives but thrives. Of course, you cannot be prepared for everything that is going to come your way financially as a small business owner. However, by having as much control as possible, any hurdles won’t rock your business to the extent they would have.