As a small business owner, your focus may probably be on hustling and making money. Well, that's great, but not enough! If you're not on top of your accounting system, you could be in serious trouble. But many entrepreneurs end up making the mistake only because they are unaware or complacent.
According to surveys, 60% of small-business owners believe they lack knowledge about accounting and finances. The worst part is that it can land you in several problems, from tax issues to compliance concerns and internal fraud. Being vigilant is the key, and you can learn the ropes over time.
How can you tell if your small business accounting is going wrong before it's too late? Here are some warning signs to be watchful about.
Sign #1- Late payments
Late payments to vendors or suppliers are a reason to worry. They indicate that you are not managing your cash flow effectively. The problem worsens over time as you may end up damaging your business's reputation. Late payments affect vendor relationships, so you cannot seek discounts and deals.
Rework your accounts payable and prioritize payments to avoid vendor problems, late fees, and penalties.
Sign #2- Overdue invoices
Are you getting timely payments for your products or services? It's another red flag you should watch out for because overdue invoices indicate that your invoicing system needs improvement. Maybe your payment terms are not clear or you have incorrect billing information.
Look for issues with your invoicing process and address them sooner than later.
Sign #3- Disorganized records
Paperwork can be the most daunting part of accounting for small business owners. Imagine the stress of handling multiple invoices, receipts, and financial documents. If you're constantly struggling to locate them, something is amiss.
Implementing an accounting software solution is the best option to keep everything accessible. In fact, it's essential for growing organizations where loads of paperwork increase and get hard to handle.
Sign #4- Inaccurate financial statements
Another sign you shouldn't overlook is inaccuracy in your financial statements. You could be in big trouble if your books fail to reflect your business's financial health.
It may happen due to bookkeeping errors, missing transactions, or even fraudulent activity. Review your statements regularly and reconcile your accounts to ensure their accuracy.
Sign #5- Unexplained discrepancies
Unexplained discrepancies in your financial records can be a warning sign you shouldn't overlook. For example, you may notice gaps in your inventory levels, bank account balances, or accounts receivable. These may happen due to errors or omissions in your bookkeeping.
But employee theft is a bigger concern. Investigate these discrepancies and take quick action to address the root cause.
Conclusion
Keeping your accounting system in place is crucial for the success of your small business. While it may seem like a lot of work, watching out for these warning signs can save you from big trouble. Also, take the necessary steps to address them and keep your finances in order. You'll not need to worry about losses, tax issues, and fraud by being a bit more vigilant.