We’ve worked with a number of new businesses over the years – from established firms to solo entrepreneurs. After seeing the best and the worst in business decisions, here are 10 accounting issues that you must take care of to help avoid going broke.
Growth, market share, employee satisfaction are all important….but none of them can happen without cashflow. Work with your accountant to ensure your business has the right approach to cashflow.
2. Tax accounts
Put 15% of your income into a tax account to cover your company tax, GST and PAYG.
Pay your superannuation with payroll.
4. Payment frequency
Complete your BAS monthly if possible. Some of the biggest expenses are tax, GST, PAYG and super. By paying quarterly or annually, you set yourself up for a big bill at the end.
5. Financial reviews
Review your numbers regularly and often. Here are the survival stats based on how regularly businesses review their affairs.
Monthly: 79.7% survival
Quarterly: 71.5% survival
Half Yearly: 49.9% survival
Annually: 36.0% survival
Don’t spend money before you have it. If you over-leverage your operations, you’ll hamper your growth. Spend only when you need to.
7. Employee control
If your employees have access to spend money on your behalf, make sure you are able to monitor and control that spending using a credit or debit card with defined limits. Check it regularly so your emlpoyees aren’t tempted to take liberties.
Inventory depreciates over time, whereas cash does not (depending on the rate of inflation, but that’s for another bullet point). Make sure you avoid stockpiling inventory, as it will only get harder to sell at a profit as time passes.
While you don’t need to understand all the fine details, you should know the basics of cash flow, budgeting, invoicing and payroll so you can better manage your business and get the most out of your bookkeeper.
10. Hidden costs
Make sure your budget has space for late payments, credit card interest, travel costs and other expenses that are often not planned for.
While there are many areas of business that can have an impact on your success – your product quality, marketing skill, management talent and more – poor financial decisions are the most common destroyer of otherwise good businesses.