Most would agree that there is something special about entrepreneurs. They have specific qualities which allow them to see the world in terms of opportunities that can be transformed into robust and thriving businesses. In fact, many of the best-known brands in the world were started by unique individuals that had a vision, understood the opportunity, and activated the needed resources to build an amazing brand.
While not every business follows this blueprint, there are common challenges experienced on the road to success. Often times business owners struggle with the need to keep up with the books themselves. While it may initially seem like a good idea to manage the books, setting aside the time to prepare invoices, document expenses, receive and deposit invoices and reconcile monthly bank statements, can be difficult and frustrating. Given the detailed nature of the work, it’s often a task that falls to the bottom of the owner’s “to-do” list leaving the business without vital information. The result can be inaccurate financial records, improper costing/production data or even worse, cash flow issues. To help clients, prospects and others understand the challenges of DIY accounting, Keep has provided a summary of key issues below.
Common DIY Accounting Challenges
- Unclear How Money is Spent – Most businesses have a variety of standard expenses incurred monthly. This ranges from rent, internet, and phone expenses to worker’s compensation, liability, or malpractice insurance. Depending on the type of business there may be managers and others that submit orders to vendors, suppliers, or order services outside the scope of standard monthly expenses. It can be quite challenging for the owner to understand how the money is being spent without a careful and consistent review of the bank, credit card, and vendor/supplier statements. It also makes it difficult to identify unauthorized purchases or billing errors when specific transactional data is not available.
- Lack of Review – Not reviewing credit card and bank statements is another sign the accounting process may be broken. It is essential to conduct a monthly review of these documents to ensure the company is only making authorized purchases. How would you know if a supplier or vendor accidentally overcharged the company? What if an employee was making charges for personal expenses on the corporate credit card? To protect the company from such unwanted activities it is recommended that a regular review of this data be done.
- Inaccurately Categorized Expenses– Failing to consistently document expenses and properly classify expenses can create reporting issues for the company. If expenses are not entered on a timely basis, properly categorized, and appropriately dated it can lead to inaccurate and unbalanced profit figures for a specific period. Understanding where and how expenses were incurred to generate revenue is essential to the decision-making process. If expenses are improperly entered it can lead to inaccurate financial reports, and ultimately, bad decision-making. Additionally, such inconsistencies can also have an impact on your personal and business tax position.
- Outdated Reports – In order to make educated decisions about the business, it is essential to have access to up-to-date reports. How can you know for certain if the business is profitable or not without the latest financial data? Financial reports need to be current to provide accurate insights into the economic condition of the company, cost drivers, profit centers, and other important information. Without updated reports, the company is at risk of making bad decisions, which may have negative financial consequences in the future.
The DIY mindset is one that opens the door to new interests, education, and realizations. However, when it comes to your company’s financial situation it is important to know when to call in an expert who can not only prevent errors but also offer value-added advice to optimize your process, and avoid the DIY accounting challenges altogether. If you are concerned about your accounting process or are facing common DIY accounting challenges, or feeling frustrated with poor reporting, Keep can help! Through a simple consultation, we can assess your situation and determine the best course of action for your business.
