Small business owners tend to juggle a number of different roles within their business, especially in the first year or two, when they may be the only employee as well as the owner! With so many jobs to do, some of the administrative tasks seem to be a common casualty – frequently falling into the category of, ‘It won’t make any difference if I do those next week.’
In some cases that may be true, but the following three mistakes are vitally important to avoid for the financial success of your business:
- Failure to Manage your Accounts Receivable: if you allow your clients to pay by invoice rather than at the point of sale, you run the risk of late payments or bad debts; and the longer a debtor takes to make payment, the greater the chance that it will be a bad debt. On top of the risk of bad debt, you are also affecting your cash flow; thereby increasing the likelihood that your business will be unable to pay creditors on time. Failure to record sales in a timely manner also raises the possibility that you may actually forget to record the sale altogether, particularly if you are busy in a number of other aspects of the business. If you are unsure exactly how to manage your accounts receivable, this article provides six keys to getting them in hand.
- Failure to Manage Your Accounts Payable: like your accounts receivable, your accounts payable is an area that needs to be managed and recorded accurately and on time. The saying ‘bill early, pay late’ is a good business rule to operate by, as long as you remember that ‘pay late’ actually means ‘delay payment until the due date’. Regularly leaving bills until they are overdue runs the risk of late fees and penalties – or having suppliers refuse to deliver without payment in advance. This is no small problem if your cash flow depends on having thirty days to sell stock to customers before payment is due to the supplier. Do you have enough cash in reserve to pay for a month’s worth of stock in advance?
- Failure to Record Your Expenses: if you pay cash or by invoice for anything that could be claimed as an expense and fail to keep a record of the transaction, you may be unable to claim the expense in your tax return. While an individual receipt may be small, you might be surprised how much you can accumulate in deductible expenses over the course of a year. Ideally you will maintain a filing system to ensure the relevant receipt can be found if required.
By Jennifer Lowe