Happy Halloween! With it being the scariest time of the year, you are probably thinking about black cats, jack o’ lanterns and how to sneak away with a little bit of your child’s Halloween candy. However, you’re probably not thinking about another topic that can be frightening to some: accounting!
We promise, it’s not that scary… we numbers nerds actually find it pretty fun! But, there are some monsters hiding in the accounting world that you should always be on the lookout for.
The Zombie — Assuming Profits Mean Cash Flow
It’s easy to make a sale (we’re talking either a sale of goods or services) and subtract your costs and then record the remaining amount as a profit. But if you’re allowing your customer to purchase on credit (meaning you are letting them pay you later), don’t be too fast to count it as cash in your pocket and spend it on your Halloween costume. What if it takes longer than expected to collect? What if you don’t collect? Now you have cash flow issues you weren’t anticipating.
It may be tempting to think profits and cash flow are the same, but by doing this, you’re giving yourself a twisted image of your company’s real condition and this can lead to even bigger problems down the road. Like a zombie, your financial statements (if you don’t understand them) can rise from the dead and scare you. If you need more help with this concept, check out this blog.
The Vampire – Not taking Bookkeeping Seriously
It’s easy to pretend bookkeeping doesn’t exist (just like vampires). However, if you’re not keeping accurate books, you might be in for major struggles that can be very painful in the future.
No matter the size of your business, investing in accurately tracking your business financials can be compared to garlic. That’s right, maintaining a good bookkeeping system can protect your business from the vampires who can suck your financials dry. Having accurate, timely financial statements also gives you confidence when making your business decisions.
Frankenstein – Not Having a Clear Budget on Each Project
Does your company operate without a budget? And we’re not talking about the kind of budget you fill out at the beginning of the year and forget about the rest of the time. We’re talking about a rolling budget; the kind you reference and update throughout the year (ebbs and flows with the changes in your business). Operating without any financial guidance could result in a freaky experiment with the end product not being what you hoped for.
Operating without a clear budget can make it difficult for your company to keep in check, and can lead to spending a lot of your hard earned money unnecessarily (nobody wants to flush money down the toilet). Don’t throw everything into one pot and hope it turns out. It is best to have a rolling budget to start with the end in mind and to help provide a roadmap for getting there.
The Witch – Lack of Accountability
Do your people know what is expected of them? And do they know what they should be doing day-to-day to meet those expectations? Lacking accountability can lead to some serious confusion; it may be a struggle to figure out who’s flying around on which broom.
It is extremely important to define everyone’s roles and performance expectations. Not only that, tell them how they can meet those expectations by relating them to their day-to-day tasks. We’re talking about KPIs (key performance indicators).
And now a plug for accounting (let’s be honest, you knew that was coming). Having timely, accurate financial information is important as many KPIs are tied to financial information. Make sure you are holding your people accountable against accurate information.
The moral of dealing with this Halloween monster…having accountability in your business can help your people know which broom they should be flying and be able to fly them in the same direction.
The Ghost – Failing to Reconcile Your Books With the Bank
Failing to reconcile your accounts frequently can come back to haunt you. When you reconcile your books, you are ensuring an account balance is accurate and correct, and that it can be tied back to supporting documentation (such as your bank statement). Without reconciling your accounts, there could be a ghost hiding around the corner. Boo!
All accounts should be reconciled (especially the balance sheet), no matter the size. From cash to accounts payable, these accounts all have an impact on your financial situation. Small to mid-sized businesses should especially be sure to reconcile their books every month to ensure the accuracy of their financial information. And don’t be afraid to reconcile them more frequently. For example, if you are experiencing cash flow deficits or concerns, you may want to consider tracking your accounts receivable, accounts payable and cash more frequently just to keep those ghosts at bay.
The Mummy – Managing All Accounting Tasks In-House
It is a common misconception that handling all of your accounting activities in-house will allow you to save money. That’s not always the case. Depending on your situation, outsourcing might actually save you money. In some cases, outsourcing is less expensive than hiring internally (remember all the cost associated with your people, onboarding, training, wages, benefits, etc.). Not only that, a reputable outsourced accounting provider may save you money due to costly bookkeeping errors.
If your business is too busy getting wrapped up in all of the accounting details, you may struggle to pay attention to other important parts of the business, and this can hurt your company – whether in the loss of revenue, customers or even reputation. Outsourcing your accounting needs (we can help!) allows you to ensure the other parts of your business are running smoothly, and lets you get back to why you got into business in the first place.
Although these accounting monsters may be scary, they are avoidable. With the right knowledge and skills, your business can avoid these tricks and instead focus on the treats of timely, accurate financial information.