All the answers to your unique business lifestage questions
Even the smallest start-up should set up formal, documented and detailed procedures for managing the accounting side of the business. This must include all aspects of managing money. Remember that even simple accounting mistakes can have a negative impact on your business.
Here are some common mistakes you should avoid at all costs:
1. You regard sales as revenue before the product or service is delivered
When you make a sale, don't count it as income until your company has delivered the product or service to the customer. If you deliver later than planned – and consequently receive payment later – but post revenue for the current period, this can give the business a false sense of profitability.
2. You don’t plan before you buy expensive equipment
Always consider the financial implications of a large purchase. When you pay cash for a piece of technology or manufacturing equipment, one of the benefits is that you can depreciate the equipment over time. But seriously denting your cash reserves can put your business at risk.
Instead, consider a short-term loan. Using a credit card is an option for items you can pay off in a few months, but beware of high interest rates. Another popular alternative is leasing, especially if the equipment you're considering requires periodic updates.
3. You don’t track expenses
The cost of pens and paper adds up over time. Getting a credit card that you use solely for business can work as a basic accounting system. Expenses are recorded on accounts statements so you can see what you spent on which business activities. In addition, making a note of all business trips, lunches and other events that you pay for will help you to substantiate claims for tax.
4. You confuse profits for cash flow
Are you spending money on product development faster than you are earning it back? Are you using credit to keep the business afloat? You could land up being heavily in debt, even if the business is profitable.
Don’t let more money go out than what is coming in. Always track what you're spending versus what you’re selling. Before moving ahead with any expansion plans, make sure that you will not put the business into too much debt.
5. You don’t set aside money to pay tax
Scrambling to find money to pay your tax bill is not healthy for the business. It’s advisable to systematically put a portion of money aside throughout the year for taxes and then make the payments when they are due.
You don’t want to dip into cash reserves or be penalised for late payments. With proper systems and process in place, you can avoid unpleasant surprises, meet business objective and remain on good terms with SARS.