Running a restaurant, salon or specialty shop is your passion. You started the business because it's what you love to do! What you probably don't love to do is the bookkeeping behind the scenes, or making those accounting decisions you are unsure of. So, like most other business owner's in your shoes it gets pushed to the back, forgotten, overlooked, yet business keeps moving forward. Then suddenly you need gleaming financials for a short term cash flow loan or to make a large asset purchase. Whoops
Here are five biggest financial mistakes business owners like you make and how to avoid them:
1. Not recording sales from your POS system on a daily basis
While you were busy running your business and overlooking your books, transactions have been piling up. Most especially those coming in through your POS system. This includes your sales, tips, sales tax, cash and credit card sales. This can turn into a big problem really fast for cash based businesses who have multiple transactions every single day. Even allowing a week to pass without ensuring your daily sales transactions are entered can add up to a big headache for you the business owner.
Entering sales journal entries manually or by hand can take up a lot of time, that is why it makes better sense to integrate your POS system directly with your books. That way transactions are moved seamlessly, automatically behind the scenes. This of course saves you loads of times, but it also helps to better ensure accuracy. These accounts will have to be reviewed and reconciled on a monthly basis but the tedious day to day entry is eliminated.
For month end reconciliations this is where you will want to employ an expert or get trained in how to manage and reconcile your books at month end. Overlooking a mistake or omitting vital information can result in fines and errors down the road, so ensure the POS and your books are reconciled each month.
2. Not keeping your taxes out of operating cash
Why it’s helpful: The IRS and your local State can levy penalties and interest for not filing quarterly tax returns on time and it is often difficult to come up with large chunks of money to pay taxes that are due if you have not set the money aside.
What to do: It is easy to not put money aside for payroll taxes or sales tax because it helps bolster cash flow in the short term. However, it is very difficult to come up with the money when taxes are due and you may find yourself having to use money from other places to cover taxes, putting you behind in other areas. Instead, put the money aside that you collected in sales tax and estimate in payroll taxes into a interest bearing savings account. That way the money can accrue interest and is set aside until taxes are due.
Additionally pay your payroll taxes at the time you run payroll and do not wait until the next month if you are a monthly depositor when the tax expense becomes larger and more unmanageable.
3. Not having a professional do your payroll
Why it’s helpful: Payroll errors can be costly and time consuming, much more so then when done correctly the first time. While payroll may seem an “easy” task payroll taxes, rules and regulations can be complicated and a dedicated expert can really come in handy.
What to do: Ensure you are on top of employee time entry including tips. Employ payroll expert to come alongside you to ensure payroll is completed correctly and payroll taxes are filed and paid appropriately.
Keeping track of tips can become a bear for many restaurants and salons, ensuring tips are reconciled at the end of every month is a must. Your good record keeping along with your payroll expert can ensure everything in payroll is covered.
4. Not reconciling accounts monthly
Why it’s helpful: Making sure all your accounts are in balance monthly will ensure you have accounted for all expenses, catch anything weird or unusual in bank accounts or credit cards and follow up on checks or expenses that have not cleared.
What To Do: Reconciling accounts at month end can be a laborious process that many small businesses just ignore, but it is something that is imperative to making sure your business is organized and continuing forward. All bank accounts, credit cards and should be reconciled to monthly statements at the close of every month. This will allow you to make sure all expenses and income are recorded properly, watch for any signs of fraud or weird things going on with your accounts and follow up on checks or payments that have not cleared your account. It also gives you an accurate month end balance so you aren't flying by the seat of your pants or spending money off a balance you think you have instead of the accurate month end balance.
You also want to take time to reconcile all your liability accounts, especially those related to taxes, payroll, tips and employee benefits. This will help you stay on top of what needs to be paid and how much of a liability, or future payment requirement, you are carrying.
5. Not analyzing your financial reports and ratios on a monthly basis
Why It’s Helpful: Monthly financials and analyzing your ratios will keep you on top of your business margins, where you need to tighten controls and give you an overall picture of how your business is doing.
What To Do: Once accounts are reconciled it is important to run your month end financials, including your Profit & Loss Statement, Balance Sheet and Budget to Actual report. All of these reports are some of your greatest tools in the small business owners tool box.
Your profit and loss statement will show you how much profit you made overall, where your money is being spent, keep an eye on expenses and show you areas you need to tighten control.
Your balance sheet will show you want liabilities or upcoming payments you have due, ensure all your payroll and taxes are being paid timely and give you a good understanding of your small business' assets.
Your budget to actual report is one of your most important management tools. It will show you where you spending too much, how accurate your projections are and any tweaks you need to make in businesses processes.
All of these 5 tips are vital to your small business's long term health but can be very time consuming. Especially when you are trying to grow your small business. One of the keys to success in small business management is delegating where possible. Hand your books over to a small business expert who can make sure all of these 5 tips are being handled properly and correctly. We at Bookkeeping Solutions 5280 are the experts in small business bookkeeping, accounting for restaurants, salons and specialty shops.
Not only do we have over 15 years experience supporting small businesses in becoming their most successful, we charge a monthly flat rate fee that is affordable and easy for small businesses to plan for and manage. Our flat rate fee covers all bookkeeping services tailored to your business needs.
Bookkeeping may not be your thing, but it is ours. We do what we love, so you can focus on what you love!
Contact us today for your Free Consultation.