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Common accounting pitfalls for small firms

If you are a small business owner, you will know just how challenging it can be. Often, there is a huge amount to do and think about. At times, things get behind and important tasks are not done in a timely fashion.

Small firms often do not have large back office teams to deal with important tasks like keeping the accounts, and the business owner ends up doing all of the accountancy duties. This means that they have to spend a significant amount of their time filling out spreadsheets – time they could be using securing new business or earning money.

Accounts tasks tend to be low on the list of small firms’ priorities and are regularly put aside, in particular when a firm is working at full capacity. This is understandable, but there are several dangers of getting into this situation. Incomplete accounts, for instance, mean that business owners cannot monitor their cash flow effectively – a serious issue indeed.

Looking to the future

Firms need to monitor cash flow and look ahead to avoid the danger of going out of business, because there is not enough cash available to buy materials and pay the basics like the power bill. To avoid going bankrupt, firms need to be able to see their likely outgoings and income in advance, but it is only possible to produce accurate profit and loss and cash flow reports when a firm’s account book is 100% up to date.

In addition, when accounts fall behind, it is easy to miss the fact that customers have not paid you. If you do not know someone owes you money, you cannot chase them for those funds. This can leave your firm unnecessarily cash starved and, therefore, more vulnerable than it needs to be.

Small firms are more vulnerable to cash flow issues than large firms because they have few, if any, reserves to fall back on. For this reason, it is very important that they are paid on time and see cash flow issues in advance, so they can borrow money to take them through those tough times if need be.

Staying on track

The other danger is losing track of things. When you get behind with your accounts, you can easily end up with a pile of receipts, invoices and salary details to be fed into your system. It is all too easy to lose some of these or accidentally mix them up.

When that happens, your accounts will not be accurate and you could end up inadvertently filing a false tax return. To HMRC, it does not matter whether you have done so by accident or not – they will still come down on you like a ton of bricks.

Posted by Mark
May 8, 2015
Features

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