Common Mistakes New Entrepreneurs Make When Starting A Business
We start new business ventures to offer our communities new opportunities, better services, or access to products that make their lives better. Businesses are established to make a profit and improve the lives of business owners and employees.
The accounting and bookkeeping system allows you to review your costs and resources, to monitor the progress of the business and apply adjustments as required toward optimization of profits. At Freestone Associates we have come across the results of business owners who assumed that good bookkeeping was unnecessary or that it was simple enough for anyone to implement. Running on a shoe-string budget is commendable but should not be equivalent to the ‘penny wise, pound foolish’ way of thinking. We have compiled the following list of common mistakes made by inexperienced entrepreneurs and hope this will help you on your road to success.
1. Mistaking bookkeeping for an unessential task
This mistake often happens when new business owners have too much on their plate and not enough time to juggle everything. The business owner thinks that managing their books is a secondary priority and so they neglect the needs of proper accounting. That kind of thinking can really bleed a company dry of vital cashflow due to issues such as vendor errors, expensive penalties, and interest on missed tax deadlines, overlooked credits on HST and corporate tax, and inexperienced administrators taking twice as much time to make twice as many errors. Hiring the right bookkeeping professional will optimize cash flow for growth while avoiding costly pitfalls.
2. Overestimating your bookkeeping abilities
Similarly, new entrepreneurs often assume bookkeeping is simple and that they can do it. But new entrepreneurs need to focus their attention on revenue generation and operations and that tends to lead to procrastination on the accounting system. Procrastination on the accounting system leads to unnecessary money bleeds due to missed opportunities, missed deadlines, penalties, and interest on taxes, overlooked vendor errors, high receivables, and bad debt. Professional bookkeepers implement best practices and have the relevant experience necessary to efficiently set up a good system that will result in the best return on investment.
3. Hiring a family member to do your bookkeeping
A mistake we see far too often is new business owners hiring a family member or friend to do their bookkeeping because they are on a shoe-string budget. While the family member in question might have your best interest in mind, they may lack the education and experience to be aware of what they do not know. Missed deadlines, overlooked mistakes, expensive penalties and interest will not be conducive to a good relationship with your family member.
4. Allowing accounts receivable to accumulate and get too high
Business owners often allow the accounts receivable to get too high and rationalize this as the cost of a start-up. However, high accounts receivables will drain cashflow, and cause sales tax and corporate tax on revenue that will not be collected. Accounts receivables to large customers could be strategic, but you cannot make that same argument when granting credit to a small customer. It is wise to keep an eagle eye on receivables and implement a strategy that is not naïve.
5. Penny wise and pound-foolish thinking
Finally, many business owners easily fall into the trap of ‘penny wise, pound foolish’ thinking. Many assume a professional bookkeeper is too expensive only to end up paying twice as much in fees to an inexperienced administrator. This then leads to cashflow constraints caused by issues with receivables, payables, penalties, and interest on taxes, mistakes on HST, etc. Too many business owners have learned the hard way that a good bookkeeper can have a profound impact on the health of the business.
To avoid these and other mistakes, reach out to Freestone Associates. We strive to exceed expectations and always put you first. Our founder, Kim Freestone, has over thirty years of multi-industry bookkeeping and office management experience, a modern Bachelor of Commerce and Project Management certificate. Kim has a pragmatic business sense, keen attention to detail, timely and reliable bookkeeping services geared to your needs, and savings to improve your cash flow.
We work with QuickBooks online and desktop to deliver efficient, cost-effective bookkeeping systems to fast-growing, small business clients. While our work is performed virtually, our clients value the importance of having a bookkeeper who can come on-site if necessary. We work remotely from our offices in South Etobicoke and provide on-site assistance as necessary to clients across the Greater Toronto area and Mississauga.