8 Reasons Why Businesses Fail without Proper Accounting Procedures
Perhaps the world's best idea, or the best product of its kind, may not be enough to save a company that has no good accounting strategy in place. Here are eight reasons why corporations lose because they don't find enough time to crunch the numbers and balance the books.
1. They may not have an action strategy. There's no way to see if your business is heading in the right direction or to identify what's going wrong without a detailed business plan. Not getting a clear business plan in place is like driving a vehicle with a blindfold on.
2. They don't watch cash flow. Running off cash is one of the best ways to get out of business unless you can reschedule your creditors' payments. Businesses who don't keep track of who owes them money and to whom they owe money, are the most likely to fail on this count.
3. They don't keep proper records of the accounts. If you're not holding your company, HMRC will find you. To help you run the company, you should be thinking of your accounting records as a company device, not just something you have to hold for the taxman.
4. They don’t understand how profits work. When working out the profit margins of your business, it is important to take into account all the fixed costs as well as the variable costs that will affect your price. If you looked at the gross profit margin only, you'll find your business doing much less than expected.
5. They don’t follow up on outstanding invoices. Businesses that don't make sure their customers respect their payment terms will find themselves with a pile of bad debts rather than healthy income. To keep your cash flow stable it is important to chase up any overdue invoices. If your debtors are themselves in financial trouble, do not extend any credit arrangements until you have first received the payment.
6. They waste money. There are few organizations which wouldn't benefit from daily cost-cutting reports. If your profit margins are low, it could cause your company to fail by wasting valuable financial resources by maintaining a large office or paying incommensurate high wages with the work being done.
7. They don’t study the market or their competitors. Your company can now thrive, but if you don't evaluate market dynamics and keep an eye on the competition, it may leave your company behind. Effective accounting involves not only understanding your own numbers but also how they match up against your nearest rivals.
8. They don’t seek external support. Although professional fees can seem large for accountants, business consultants or tax advisers, the long-term money they can save your company will make the initial outlay worthwhile. Any business may benefit from professional help for their business accounts, and those who think they 're going to save money by doing it themselves can find it costing them dear.
Your company could be heading for financial failure without the correct accounting procedures in place. Don't stick your head in the sand and hope the situation will change, because without professional advice it is unlikely to.
Robert Arnone’s mission is to serve as the trusted advisor for business owners that helps them achieve their financial goals. By applying expert knowledge in accounting and financial best practices in a personalized fashion, our clients are able to plan for and more importantly, achieve, financial success. We offer these services at a value that large accounting firms can't afford by holding dear the values of Integrity, Service, and Value. Contact us today for accounting services that go beyond your expectations!