One of the critical indicators of a successful business is accurate and detailed accounting. Effectively managing your business finances can be the difference between profitability and bankruptcy. Consider the consequences of poor business accounting and how to avoid losing track of finances.
Common Business Finance Issues
Running a business can be highly stressful. While there is a lot of opportunity for profit and growth, the risks are equal to the rewards when it comes to business finances. Consider the following business finances issues.
- Lack of Time: The day-to-day demands of a business can make it really difficult to keep up with financial tasks. Many business owners and managers struggle with time management, and business finances quickly end up on the back burner.
- Insufficient Resources: Whether it’s not having the necessary software or not having an employee skilled in business finances, a lack of resources can be the issue when it comes to business finances.
- Overwhelming: Financial tasks can be very overwhelming if you don’t know what you are doing. This can be exacerbated if you are already behind and there isn’t a system set in place.
- Fear of the Unknown: Business finances can reveal a lot about a business. Sometimes the information can be anxiety-provoking if you are not where you thought you were in terms of profits.
- Tedious and Boring: Accounting and finance tasks can be boring as they require you to be detail-oriented and diligent. While some people get excited about financial reporting and tasks, the majority of business owners like to put their energy elsewhere.
Top Consequences of Avoiding Business Finances
Avoiding business finances can lead to major consequences. Consider the following if you are behind on your business finances.
- Underestimating Business Costs: Financial reports can help you understand your business costs. With this, you risk overspending and cutting into your business profits.
- Overestimating Cash Flow: Similar to underestimating your business costs, overestimating your cash flow can be detrimental. Falling short of your cash flow projections can put your business at risk.
- Tax Issues: Whether it’s underpayment or overpayment, failing to keep track of your business finances can have serious consequences. Avoiding business finances can result in you losing money, or worse, being in hot water with the IRS.
- Unable to Qualify for Financing: Investors and banks need financial information for you to qualify for financing. Avoiding your finances and failing to provide the necessary information can impact your business financing options.
- Increased Risk of Fraud: Without proper financial tracking, it can make it much more difficult to detect fraud or embezzlement. Consistent tracking can make it much easier to identify unusual or suspicious activity.
How to Avoid Losing Track of Finances
Avoiding your business finances can be brutal in terms of the consequences. Consider the following tips on how to avoid losing track of business finances.
One of the best ways to ensure your finances stay on track is to outsource your accounting. Outsourced accounting solutions can be customized to your unique business needs. Outsourcing these tasks often results in higher profits and reduces your risk of consequences based on losing track of your finances.
Link Your Accounts and Accounting System
Link your bank and credit card accounts to your main accounting system. With all of your financial data in one place, it can make it much easier to track. Manual data entry can be time-consuming and have a high risk for errors.
Track Key Performance Indicators
Key performance indicators (“KPIs”) can help you evaluate your business finances on a day-to-day basis. Tracking these can help you understand your strengths and weaknesses so you can modify your business approach accordingly. Financial dashboards for franchises can be helpful as you can customize the information to meet your unique business needs.
Avoid sending invoices any other way than electronically. Not only will this help you easily track your expenses, but it will also help ensure you are paid on time. Add your payment link on the invoice to effectively streamline the entire process.
Basic alerts can help you stay organized and on top of your business finances. Have your accounting system generate an alert for things like late customer payments or low balances. These reminders can help you keep your focus on what matters on a day-to-day basis when it comes to running your business.