It doesn’t matter if your startup efforts are home-based in the basement or if you’ve been in business for years, money management can be a concern for all business owners. Dealing with cash flow, expenses, and billing can be a challenge. In some cases, certain financial mistakes can be enough to force a company to close its doors.
Maybe you’ve identified financial mistakes that have affected your company. Or, there is a possibility that mistakes have slipped by undetected. Either way, it is essential that you have a good accounting system to help you stay on track. Just because financial missteps happen, doesn’t mean that it will be the closing chapter for your business efforts. Instead, these mistakes can often be used to identify weak points in your system, helping you strengthen your business strategy for the future.
Transparency is Key for Success
The most important thing that you need to do is to maintain transparency with your reporting and accounting practices. If a mistake happens, it might be tempting to “brush it under the rug” because you are embarrassed that you didn’t get it right. But we are all human, which means that mistakes happen. Instead of spending your time focusing on the problem, look at the overall picture and identify areas of improvement.
Transparency is the best thing you can do to keep your company moving forward. When you are consistent with financial tracking and reporting, then you can always get a good feel for the current positioning of your company. These details can be used to influence your business decisions, helping to propel your company forward in the future.
So, every business owner needs to look at the foundation of wise financial tracking: do you have a good accounting software and system to maintain transparency with every transaction that moves through your accounts? Creating this system is essential so you can leverage your mistakes for your advantage.
Turning Financial Mistakes into Advantages
How do you put this principle into action? It can be difficult to see where you can make changes after a mistake so that the situation is a positive support for your company. Here are a few examples to help you create the mindset of learning from your mistakes:
How to Handle the Situation When Mistakes Happen
What is your automatic response when a mistake is discovered in your business? Some people get upset; while other people want to ignore the problem. Before another mistake happens in the future, it is smart to evaluate how you will handle the situation going forward.
Failing fast is key when mistakes happen. Don’t let yourself get so caught up in the moment that you have a hard time moving forward. If money was lost, then view the situation as “tuition” for the education that you learned. Allow yourself to learn from the mistake so you can implement changes that will move your company forward in the right direction. A few small changes can be put into operation, making it possible to avoid running into the same mistake again in the future.
Tapping into Professional Services
The most common reason why financial mistakes happen is that business owners fail to utilize professional services that are available. Even though it might seem smart to save a little cash with a DIY approach, you could be facing a loss of thousands of dollars in the future with a big mistake. It’s worth the expense to bring in an industry professional so you can avoid some of the most common errors in the industry.
One great example is in the accounting industry. As a small business owner, you might try a do-it-yourself approach for tax preparation and filing. But you need to consider the hours and hours that will be required so you can figure out the tax forms and understand the best way to leverage your deductions. Plus, it is likely you could be missing out on thousands of dollars in tax write-offs because you didn’t understand the law. If a mistake is made, then you could be facing fines and fees from the IRS.
Instead, spending a little money for ongoing accounting services can be invaluable to help you avoid the common mistakes made by small business owners. If you are looking for financial support for your company, then MRB Accounting. Is here to assist. Call us at (516) 427-7313
How are the 3 Financial Statements Linked? (Income Statement, Balance Sheet, and Cash Flow) and why it matters!
Net Income & Retained Earnings
Net income from the bottom of the income statement links to the balance sheet and cash flow statement. On the balance sheet, it feeds into retained earnings and on the cash flow statement, it is the starting point for the cash from operations section.
PP&E, Depreciation, and Capex
Depreciation and other capitalized expenses on the income statement need to be added back to net income to calculate the cash flow from operations. Depreciation flows out of the balance sheet from Property Plant and Equipment (PP&E) onto the income statement as an expense, and then gets added back in the cash flow statement.
For this section of linking the 3 financial statements, it’s important to build a separate depreciation schedule.
Capital expenditures add to the PP&E account on the balance sheet and flow through cash from investing on the cash flow statement.
Modeling net working capital can sometimes be confusing. Changes in current assets and current liabilities on the balance sheet are related to revenues and expenses on the income statement but need to be adjusted on the cash flow statement to reflect the actual amount of cash received or spent by the business. In order to do this, we create a separate section that calculates the changes in net working capital.
It's critical to understand how certain events in your business will change these statements and lead to changes to your bottom-line. Let Us Help. Call MRB Now.