Failing or erratic accounting systems can cause serious problems for your business and are never easy to solve. These accounting systems can lead to poor cash flow management and, ultimately, business collapse if corrective steps aren’t taken early enough. In 2022, about 44% of startups failed globally because they ran out of cash, a common indicator of failing accounting systems.
A working accounting system can help startups and growing enterprises set themselves out of financial management challenges and remain afloat for a long time. If you’re worried your erratic accounting systems will soon kick you out of business, here are some crucial tips to help you get everything back on track.
Build a structured accounting department
It doesn’t have to be an expensive team with sophisticated accounting systems. A structured accounting system can comprise a professionally trained accountant and a few internal staff members. Your internal staff members can help with light accounting-related tasks like bookkeeping and timely follow-up of sales and payment in respective departments.
You can then hire a certified tax accountant NYC to help with the technical aspects of the job. They will help analyze your cash flow, calculate how much you owe as tax, and advise on effective ways of minimizing costs and optimizing revenue.
Sufficiently train your staff before hiring
Sufficient training is important as it equips your onboarding employees with the right skills and helps them embrace your company culture from the beginning. Every activity that goes on in your organization will ultimately affect how much profit or loss you record in your accounting books. You’d want to train every staff member to uphold the highest professional standards to achieve their optimal output levels. As for your accounting department, ensure your staff is well-versed in modern accounting practices and trained to use modern accounting tools effectively.
Strike a balance between manual and automated processes
When you take an automated accounting system approach, you may be tempted to leave everything to machines and accounting tools. While this might feel relieving and time efficient, over-depending on automation can impact your accounting processes negatively.
For instance, if your suppliers are paid on a given date, your systems will forward the usual existing names for payment. If any of the names forwarded are for persons who no longer work for your company, you’ll end up paying ghost workers. This will affect your cash flow and profits, which is why you need to have both automated and manual processes running concurrently.
Distinguish profits and cash flow
Most startup owners prefer spending money coming in as profit to grow their businesses rather than earning it. Doing this continually could lead to bankruptcy as you’ll have your business money tied up in assets and won’t be able to pay its expenses. It’s important to understand the minimum cash flow your business needs to run smoothly without plunging into debt before going for expansions.
It’s also important to know that you’ll be taxed based on the profits you make annually. Understanding the difference between profits and cash flow helps you calculate accurate margins and plan your expansion procedurally.
Building and managing a successful accounting system is a significant step toward building a sustainable business. Whether you’re starting a business or are looking for ways to improve an existing one, these tips can help you build a great accounting strategy.
The news and editorial staffs of the Chicago Tribune had no role in this post’s preparation.