Could your approach to financial management make or break your business?
It is commonly known that many small businesses fail in their first few years of operating. While it is easy to put it down to a number of factors – the timing wasn’t right; the product failed; marketing wasn’t strong enough; the bank wouldn’t invest; it rained all week – one of the biggest issues is poor financial management.
So many great products and ideas fail to reach their full potential, because their owner wasn’t able to grasp the process of running a business. Just think, how many times have you seen budding entrepreneurs getting turned away from the ‘Den’ because they didn’t get the numbers right, even if their product was great.
But we shouldn’t point the finger and blame their laziness or lack of understanding on managing finances. There are many pain points new business owners experience when it comes to the task of accounting.
1. Going it alone – Starting and running a business can be a lonely game. Planning, designing, networking, there’s a lot to get on with. With enthusiasm and passion for the product taking a front seat – and rightly so – for some it can mean the ‘boring’ stuff like accounts move lower down the list of priorities.
There is a lot to be said for people who recognise their weaknesses and seek advice and expertise to support them. The most successful entrepreneurs have strong teams around them to utilise the skills and expertise they may be lacking themselves
2. Complexity – Understanding the financial commitments, constraints and opportunities of a small business can be a minefield. The terms, acronyms, deadlines are enough to drive anyone mad, especially when you just want to focus on your product or service.
Even if accounts are outsourced to a third party, it is still important to understand the terms and forms being waved in front of you.
3. Bad advice – It is easy to seek advice from anyone willing to offer it, but it is important to get credible commercial advice from someone you trust. It’s financially more beneficial to spend money on a decent accountant or adviser than to pay the costs of missed payments, tax errors or fines.
Making a bad move can not only impact your bottom line, but your reputation could also be impacted, something no small business can afford.
4. Lack of Preparation - Like the old adage says, ‘those who fail to prepare, prepare to fail’, and when it comes to running a business, it couldn’t be more true. This is as true for your market research as it is for accounts. Aside from looking at initial outgoings and potential income, it is vital to take a short and long term view.
I wouldn’t ignore the power of a robust business plan – it can work wonders for long term success.
5. Technology Disruption – As a tech advocate, it might be surprising to hear me say that this can be a problem, but by using an unreliable provider, and in turn the wrong technology, this really can become more of a business hindrance and potentially an expensive project to correct. There is a wide variety of tools and platforms on the market helping business owners to manage finances, yet many still struggle to get a full grasp of their accounting processes.
One of the main problems is the cost. Most small businesses are income-poor, so paying hundreds of pounds a year for accounting software that should ‘just do the job’ is tough. Add on the complexity of some of the tools out there, sometimes with limited support, the software becomes redundant, so it is easy to feel like life is easier working with pen and paper.
With ‘resolution season’ well underway, it makes sense to use this time to face these issues head on and make sure you’ve taken control of your financial management once and for all. It really doesn’t have to be complicated.
Speak to your accountant and if you don’t have one, find a recommended one who is willing to clarify any issues or concerns and maybe advise on which accounting tool would best suit your budget.
Spend time researching accounting products which are simple to use and genuinely make life easier. There’s a lot to be said for signing up for a free trial of a platform before signing up. Use this trial to really put the product to the test and make use of all its tools capabilities.
Accounting doesn’t need to be complex for anyone running their own business. If approached correctly it can be extremely simple, saving you the time to focus on what you enjoy most.
Mark Woolley is commercial director at Reckon.