Thriving, rather than just surviving is what it’s all about. But, unfortunately, SME endeavours are generally fraught with missteps, mishaps, and mistakes. No matter how much experience you have as a business owner, you’re bound to run into problems at some stage. To help ensure you maximise your profitability and business compliance, here are five common accounting mistakes business owners make.   

1. Profit doesn’t mean cashflow

Profit and cash flow are both important aspects of a healthy, growing business, but they’re not the same thing.  

Profit is your revenue minus your expenses, also known as net income. Cash flow is how your money flows in and out of your business. You’ll have a positive cash flow when there’s more money coming in than going out. 

If your business is profitable, but you have too much cash tied up in inventory or receivables, you may not be able to cover your payroll or rent. On the other hand, you may be meeting your operational expenses, but your business isn’t profitable. Over time, this may impact cash flow and hamper growth.  

2. Not using cloud-based accounting 

There are a lot of benefits to using accounting software, the most obvious of which is a big reduction in calculation errors. Cloud-based accounting makes collecting and processing information fast and efficient and offers wide-ranging benefits that include:   

• An instant overview of your numbers because the software checks data during processing.  
• Low or no upfront costs and a modest monthly payment. 
• No software updates to worry about.  
• Easy to access and protected data anywhere and at any time.  
• Quick, easy collaboration with your accountant who also has access to your accounts.  
• The chance of human error is significantly reduced.  
• The software scales with your business’s growth.  

3. Not taking financial reporting seriously  

Only checking your financial reports every few months, or worse at the end of the financial year is a mistake many SME owners make. Another shortcoming you want to rectify as soon as possible is looking at your numbers every month, but not fully understanding them.   

When you need additional investment for your business, your financials are an important tool that lenders and backers will want to see. Well managed financials are also an indication that you’re serious about your business.  

For daily operations, the more closely you monitor – and the better you understand – your financials, the faster you’ll identify problems, notice slow-paying or non-paying customers, and have access to data that helps you make better decisions.  

4. Keep your business and personal accounts separate 

No matter what type of business you operate, keeping company and personal finances and expenses separate is the only way to establish how profitable your business is, and how healthy it is in terms of cash flow.  

Separate accounts and records also ensure your accounting is more efficient and that you can quickly find the information you need when you need it. By tracking all your invoices, transactions, and deductions, you also won’t miss expenses that are tax-deductible and could impact how you file your taxes. 

5. Failing to properly manage your payroll  

Payroll is one of the most complex areas of running a business, and doing it effectively means ensuring your employees receive correct payments, on time, and in compliance with applicable laws. But, without the right tools and know-how, it can be a complete minefield that can cost employees – and your company – time and money.  

Not only do you want to make sure that you’re paying your employees appropriately, but you need to be sure that essential areas like payroll taxes and withholdings are being done accurately. When in doubt, this is an area of your business where you can really benefit from outsourcing it to professionals.  

Conclusion 

Business ownership gives you the flexibility to pursue what matters to you in a way you believe will be most meaningful and impactful. But the pitfalls of mismanaging your finances can derail your dream.