Improper small business bookkeeping and how it leads to business failures

October 31, 2018

Procedures, policies, and systems: love ‘em or hate ‘em, you can’t live without them!

Small business bookkeeping is one of the most important (and often under-appreciated) parts of running a business.

Conduct a straw poll of small business owners however and some will tell you that they don’t have any clear bookkeeping procedures in place!

Money is the root of many problems in business. And bad small business bookkeeping is often the roof of financial problems in your business!

A bookkeeper in Melbourne explains just a couple of the ways small business bookkeeping can cause your operation to fail.

Small business bookkeeping

1) No proper financial records

Many businesses fail because they don’t have a good grip on their numbers. They have no idea about their:

  • Cash flow
  • Expenses (fixed or otherwise)
  • Profit
  • Debts and obligations
  • Savings

Without a complete picture of each of these things, it’s all too easy to start making all the wrong decisions. You can easily end up spending beyond your means and digging your business into a hole.

A major hurdle that businesses face is the variety of small business bookkeeping problems, which often start with not having proper financial records, leading to a lack of control over financial aspects.

Proper bookkeeping equals proper financial records. And that equals better decisions. While it isn’t as glamorous as a new product line or price hike, small business bookkeeping is just as essential to your survival.

2) Unmonitored cash flow

As many will say, “cash is king”.

While we don’t 100% agree with this statement – long-term investment is still crucial to your survival – there’s no denying that cash is certainly important.

This isn’t the first time we’ve talked about the importance of cash – click here to check out what we said the last time this topic came up.

Here’s a quick recap: while profit is what helps you grow, cash is what you use to keep the lights on in the meantime. Without cash coming in (cash flow), you won’t be able to pay for:

  • Overheads
  • Wages
  • Bills
  • Supplies

Make no mistake, cash flow serves as the lifeblood of any business.

As such, a poor cash management system has the potential to completely sink your business!

Many businesses fail because of cash flow problems. In some cases, it’s the result of poor cash tracking. Inadequate small business bookkeeping can lead to your actual cash position being obscured.

In others, your cash flow problems might stem from bad bookkeeping. An inaccurate idea of your cash flow can cause you to overspend.

Understanding the benefits of small business bookkeeping could prevent issues like unmonitored cash flow, ensuring that businesses have a clear picture of their financial health.

3) Misunderstanding your profits

We know what you’re thinking: how could you possibly misunderstand how profit works?

Believe it or not, there are some out there who don’t! As they say, “make something idiot-proof and they’ll just send a bigger idiot.”

Now, we’re not accusing you of not understanding how profit works.

However, the way you’re recording your profit is a different story!

Using the wrong forms or software can lead to your net, gross and operating profits getting mixed up. Worse, improper bookkeeping can lead to completely inaccurate profit numbers!

Needless to say, both can throw your business decisions such as pricing, goals and strategy way off track.

4) No follow-up on invoices and debts

Debt collection mightn’t be something you automatically associate with bookkeeping. And if you ask us, that’s one of the biggest mistakes!

That’s because many small business owners take an ad hoc approach to chase invoices. Instead of having a formal schedule, they write a note and ringback whenever they have a spare moment.

Even more important is tracking your own obligations. Miss your obligations and you can expect your phone or inbox to start blowing up.

Both of these situations can lead to:

  • Debts being lost
  • Wasted time
  • Paying interest or charges
  • Negative cash flow

A small business bookkeeper helps you avoid this happening by tracking obligations – both the ones owed to you and the ones you need to pay.

Our team don’t just collect debts – we’ll build you a system that eliminates bad debt expense and maintains your credit rating.

We can set you up with easy-to-use cloud bookkeeping systems. These send out automated reminders to your debtors, as well as reminding you of your own obligations. They can even automate payment for you!

Small business bookkeeping

Improve your small business bookkeeping today

Review and assess your existing financial processes with Maximum Business Solutions!

So now you know why small business bookkeeping is important. The next question is what can you do to improve yours!

That’s where your bookkeeper comes in.

Maximum Business Solutions reviews and improves your small business bookkeeping. Our team helps by:

  • Assessing your bookkeeping needs
  • Planning and Strategizing
  • Helping set up better processes

Implementing effective small business bookkeeping can significantly help businesses grow, by providing clear insights into financial performance and enabling better decision-making.

Taking into account your unique bookkeeping requirements, we devise a tailored solution that addresses your unique problems, whether that’s poor cash flow, tax problems or accounts that are plain messy!

Our team specialise in setting small businesses up with powerful, easy-to-use cloud bookkeeping platforms like MYOB and Xero.

And if you prefer a human touch, we’re more than willing to meet up with you face-to-face!

Need a small business bookkeeper in Melbourne? Contact Maximum Business Solutions on (03) 9589 0128 or fill the form to arrange a friendly chat.