Accounting Pitfalls SMEs Should Avoid
Do not think of accounting as separate of the business processes. This is usually the result of the lack of integration and one of the most common pitfalls for startups and SMEs.
Accounting is a task that should be done on a daily basis, not every week or every month. Integration is when accounting is part of the business processes. After collecting the accounting data, you need to understand the basics; you need to understand what these numbers mean in order to be able to interpret and account for them.
As a startup or an SME, you need careful consideration of your credit terms. Always remember that making a sale is not the same as making money. Your company might reach its target sale, and the bottom-line will show a profit, but you might not be able to pay your bills because you lack cash. As a startup business, you might not be able to sell your customers on credit, because you will need the money as early as possible, even sometimes before you deliver the goods.
Never mix your personal and business accounts! For your business decisions to be rational and accurate, you will need to have separate accounts. One of the most common pitfalls as well is the lack of forecasts! Forecasting, even though it might not be as accurate as you want it to be, is very important for you to look at your startup as a whole. Forecasting will help you look at all the aspects that you might have neglected!
If you can’t handle the accounting activities of you business, or in case it is not your area of expertise, you will need to hire an experienced professional accountant, who will manage that for you. Your transactions need to be recorded properly, for you to be able to analyze the financial health of your business!
As credit terms, you will also need to negotiate important aspects of your business like interest rates and due payments. Never take the first option, always look for better solutions that could be helpful for your business. For example, banks are not the only choice for you to finance your business!
Watch out for such pitfalls, consider available options, follow best practices, and you will be able to make the right decisions for your business!