How you are losing money without correct accounting setup

If you play with numbers, digits and values, did you ever think of recording, analyzing, maintaining, budgeting, classifying and summarizing financial transactions in a certain manner. Or were you so busy making profits or increasing the sales that you did not bother to evaluate your finances.

You as a small business owner believe to have less time and energy to follow the required steps of financial management owing to the enormous work load the startups and small business owners have. However, it’s one of the key elements of deciding the direction of your business and therefore a necessity.

For planning business expenditure and having a strong hold on cash flow management, you are to track your expenses and overheads cost. Either you need to supervise all the affairs of the financial management yourself or hire a professional to do so. However, in both you need to understand the basics of accounting and implant a small accounting set up. Certain elements have to be kept in mind while setting up an accounting system;

1. Keep updates on your cash flows on daily basis. Keep your money transparent as much as possible by implementing relevant cash controls and calculate your inflows and outflows every now and then, by keeping record of all transactions.
2. Calculate and keep track of your net income on monthly basis to be able to understand how much profit or breakeven or loss do you have during that month. This helps you set the direction of your company.
3. Count inventories on monthly basis and keep track of all in and out of inventory by establishing a proper inventory tracking system, whether manual or automated. Keeping track of inventory will also help you stay alert on what things to order again or in near future, by simultaneously ensuring no abnormal losses by theft or misuse of the same have occurred during the period.
4. Have knowledge of taxes such as income tax, tax liabilities and exemption processes and establish a tax system accordingly.

So, why am I even explaining all this stuff and what are the benefits to maintain an accounting process? Well, nobody wants to lose their hard earned money or push their business into a black hole. Not having a strong grip on your finances and placement of required controls might lead to losses in various ways including, theft, fraud, irregular transactions, duplicate payments, buying at higher value then earlier, selling at lesser value then your actual cost thereby ending up in loss on each sale. The last one is the most dangerous and many businesses fall prey of that. Not costing the product value correctly might lead you to have increased sales by having increased losses simultaneously. In order to avoid this, let us see few points how not to lose your money this year.

We need to make friends with accounting setups to maintain business records, standardize our expenses and purchases and thereby eventually save time and effort. The controls implemented by accounting setups ensure that your money is not being misappropriated by anyone and you have full control over the same. It also helps you to keep track of your expenses, compare prices with vendors and make better decisions in future. It is obvious that as a human being no one can remember each transaction and therefore record keeping is a great business tool.

Secondly, the best benefit you get by recording all of these accounting matters is to check and keep track of each year activities for comparison and weighting results, as to how much profit or loss has been earned each year and decide what actions might be required to rectify the current business situation. Moreover, it may even assist in managing or coordinating with other stakeholders. Therefore, it is recommended that you standardize your accounting setup and implement the relevant controls, keep track of your cash flows and analyze your accounting results, either by yourself or acquire the help of a professional to do that for you.