There are many factors which can make or break your business, but even if you are making tremendous sales and profit, your business can still be ‘on the rocks’ if you make too many bookkeeping and accounting mistakes. The problem with bookkeeping is that it takes time, and not many business owners really have the time to focus on keeping accurate records of their financial transactions, payments, invoices, accounts due, employee salaries, and everything else. If you want your business to grow and if you want to avoid unnecessary errors in your bookkeeping and accounting system, here’s how you can prevent these errors from occurring.
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Have a forecast for your cash flow
Many businesses today struggle and ultimately fail simply because of cash flow. In fact, about 70% of small- to medium-sized businesses see cash flow as their biggest issue, and for good reason. If you want to avoid financial pitfalls as a small business, your first step would be to create a forecast for your cash flow. And don’t just do it once – do it on a regular basis. You should come up with a chart that shows how much you will be paying in the next year as well as how much you should expect in sales every month. Sadly, some business owners make another crucial mistake: they only look at their bank account, and if there is a lot of money in it, they think business is going well. But if you only look at your account to determine how well your business is doing, this is a big error because most of the money in your account is not yours. But if you have a forecast for your cash flow, you know exactly how much money is meant for your business and your bills.
As a rule, you should have at least three months of emergency funding set aside so you can deal with a low period or an unexpected occurrence. This is especially crucial as your business’ sales grow because many businesses tend to overtrade or take on too many projects with a lot of upfront expenses before they even receive their payments.
Get the money as early as possible
Another problem businesses face is not getting their money on time – and then having to deal with it by dipping into their cash flow reserves until they run out, as confirmed by Accountants Central London. If you have high overhead expenses, you can be particularly vulnerable as well. This can also turn into a huge problem if you have clients who pay slowly. For example, if a customer often takes 2 months to pay, you will have to pay for your materials, VAT, and staff yourself for at least 2 months prior to receiving the money you are owed. This can be a big burden, so make sure you monitor clients who owe you and try to get them to pay you as early as possible.
If you want to encourage a client to pay up early or if you want to avoid a slow-paying customer, you can ask the customer for a deposit upfront; you can also set up payment terms of 14 days or 7 days rather than 28 days. Another option would be to bill your customer in phases instead of at the end of the service or project.