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Accounting & Finance

How to Avoid the Biggest Mistakes in Business – Mistake No. 2

Annual financial statements or accounts prepared once a year many months after your Balance Date are only really useful for working out your tax bills, yet for the majority of business owners this is the only financial information they see.

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Arguably one of the biggest mistakes small business owners make is they fail to acquire more than basic financial knowledge and without the acumen, they make poor decisions. Did you know most business owners are either product or service specialists or salespeople? These are the people who take the risk to commercialise their skill however neither role requires much understanding of how to run a business.

At best they will learn very quickly that sales revenue must exceed expenses and outgoing and there must be some profit left over for working capital.

Overreliance on Accountants

Annual financial statements or accounts prepared once a year many months after your Balance Date are only really useful for working out your tax bills, yet for the majority of business owners, this is the only financial information they see, and often they don’t really know how to interpret it correctly. There is an overreliance on accountants and trusting them with all the reporting and knowledge of the financial health of a business.

Prior to the introduction of computers for all and accounting software, it was too expensive for most businesses to prepare periodic management accounts since preparing the accounts manually from traditional hand-written books and records was too time-consuming. However, nowadays good accounting software is provided as a SAAS (software as a service) and it’s affordable for startups, micro businesses right through to large enterprises.

Use Online Accounting Software

With a small monthly fee and accounting software apps have been designed with the end-user in mind, i.e. mostly non-accounting language and with an intuitive design. There shouldn’t be a business without online accounting software as it’s a one-stop-shop for invoicing, customer and supplier databases, accounts payable, job costing, divisional or branch accounting, timesheets, payroll and much more.

Use The Knowledge Base

Plus the accounts software is usually cloud-based and it can be accessed by your accountant who can manage the other reporting e.g. management accounting, profit and loss statements and forecasting sales and cash flow reporting. Business owners need to know how to read a financial statement.

What you need to do is use the app’s knowledge base to upskill your understanding of accounting, bookkeeping and financial reporting.

Armed with the knowledge of whether you’re making a high or low profit or even a loss enables you to react so much quicker to your circumstances, whether it be tax planning if you’re making good profits or cutting your expenses or your drawings if you’re not doing well. That is, of course, unless you’d rather stick you head in a bucket of sand in blissful ignorance until it’s too late and you go bust!

Check out our Accounting and Finance category for more tips.

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