Start-ups succeed – or fail – based on their cash flow.
If your start-up spends all its initial capital and can’t pay the bills or make payroll, then it’s going to be bankrupt This is why getting bookkeeping right is so crucial. It might not seem like a very exciting area of your business – but without it, there won’t be a business left to run.
It’s easy to make mistakes when it comes to bookkeeping, especially if you’ve not had any experience dealing with ledgers and balance sheets before. Here are four all-too-common mistakes to steer clear of:
Mistake #1: Choosing a Bookkeeping Service Without Shopping Around
When there are dozens of other tasks you’re trying to handle as the founder of a busy start-up, it’s very tempting to simply choose the first bookkeeping service you come across.
This could prove to be a huge mistake, though. As this comparison between Pilot and Bench shows, some bookkeeping services will limit your options by handling your accounts in a proprietary system (which means you can’t easily switch bookkeepers) or by only offering cash-based bookkeeping.
Mistake #2: A Poorly Defined Business Plan
If you don’t have a clearly defined business plan, you’re going to run into a whole host of potential problems, including with your bookkeeping.
Your business plan should include a cash flow forecast so that you know crucial things like what you need in the way of startup costs, what expenses you’ll need to pay in your first few months doing business, and when you can realistically expect money to start coming in.
Mistake #3: Not Monitoring Accounts Receivable
One factor that can cripple start-ups is having several late-paying clients. If you were expecting to receive $4,000 from three clients who all pay late, that’s a $12,000 hole in your finances. The impact on your cash flow could be enough to seriously damage or even destroy your business.
It’s crucial to monitor your “accounts receivable” ledger, where you have a record of all invoices issued and as yet unpaid. You need a system to follow up with clients who are late paying – perhaps an email in the first instance, then a phone call a few days later if there’s no response.
Mistake #4: Keeping Patchy or Inconsistent Records
It’s important to keep good records from the start, whether or not you plan to work with a bookkeeper. If you decide to handle everything yourself, then good records will at least make the task easier and quicker – and if you do bring a bookkeeper on board, you’ll save them a lot of time (and you a lot of money!) by handing over everything in a sensible, organized format.
This means having consistent processes for tracking expenses, for issuing invoices, for filing bank statements, and so on.
Mistake #5: Mixing Personal and Business Finances
If you’re the sole founder of your start-up, you might be tempted to use your existing checking account to receive and make payments. This is a huge mistake because it makes it very difficult to figure out which payments and expenses are personal ones and which are business ones – and it means it’s impossible to see the financial health of your business at a glance.
As soon as you start your business, you should set up a separate bank account to handle all your business incomings and outgoings separately from personal ones.
When you’re running a start-up, you’re probably wearing a lot of hats at once … and it’s understandable that some things get forgotten or mishandled in the rush. Your bookkeeping, though, is one key area you can’t afford to get wrong. Check you’re not making any of the above mistakes – and if possible, consider hiring a great bookkeeper such as McRea Woodson & Associates to keep things on track for you as you go forward.
Source: Tech Bullion