The majority of business entrepreneurs have no trouble coming up with great ideas for how to best launch a new company. Aside from this creative attitude, studies reveal that over 90% of all companies fail within the first five years. The problem for many of those business owners isn’t their ideas, the products or services they offer. Rather, it all comes down to how they manage their money. Even the most flawless enterprises will succumb to their demise if they do not maintain a stable financial plan. And other than teaching definitions given by multiple authors school doesn’t teach us this. So here are 5 mistakes that startups usually make and should look out for.
1. Distinguish Between Personal And Business Finances
Many business entrepreneurs make the mistake of combining their personal and business funds. These minor breaches may not seem important when starting a business, but as your company grows, the blurred border between your personal and corporate finances may become an issue. It is vital that you set up separate accounts from the start of your company and that you do not cross that boundary.
2. Accounting Procedures That Are Too Neglectful
The majority of business owners will admit that they are not professional accountants. These same business owners, on the other hand, try to manage their funds in-house. This costly error encourages startup entrepreneurs to focus their thoughts on things like payroll and bank account reconciliation rather than completely on the best approach to build their business.
A accounting outsourcing service provider will ensure that your records are kept up to date, that transactions are appropriately recorded, and that your accounts receivable and payable are kept track of.
3. Revenue Declaration Prior to Actual Delivery
Declaring your revenue at the moment of a transaction is often a risky strategy to take. It improves the appearance of your books — at least at first —but it does little to show accurate earnings. The problem with keeping track of your revenue too early is that you overlook the costs associated with the final delivery. Whether you’re selling goods or providing services, you need to consider your costs before calculating your actual profit.
4. Capital Expenses Laxity
You’ve probably heard of a lot of startups that have a great year only to be forced to close down the following year or so. Where did these successful business people go wrong? Following a successful year, many business owners make the mistake of going on a spending binge with money from their earnings. This method is especially risky when purchasing high-value items that can degrade over time.
5. Financial Analysis With Restrictions
Almost any business owner embarking on a new venture is expected to create a complete budget. Nonetheless, a number of startup entrepreneurs are unable to regularly assess their company’s status. This limits their ability to change their budget as the business grows or to spot potential problems in the background. One of the best things about using outsourced accounting services is that they can provide you with up-to-date reports that allow you to assess your company’s financial health.
By avoiding common financial blunders, you can reduce your chances of becoming one of the 90%. We at BBDS can assist you in avoiding these common accounting blunders. Get in contact with us to learn more about how we can assist you with your bookkeeping.