When you own a small business, or operate an association such as a home owners association (HOA), managing the accounting can be very challenging. Accurate record keeping is essential to any business or association, and sadly, poor bookkeeping efforts are almost always the main cause for a business closure. However, there are five common causes for these problems that can easily be avoided. Eliminating these issues from the management of your business or association can help prevent financial problems in the future.
Create A Financial Controller Position And Select A Candidate Wisely
You can call the position anything you desire, financial officer, head of accounting, bookkeeper extraordinaire, the title is not as important as the position. Many small businesses see dollar figures for payroll instead of the benefits of hiring a qualified accountant.
A junior bookkeeper may be able to pour through accounts receivables and payables with ease, but are they qualified to generate the types of financial information you need to operate your business or HOA? HOA accounting can be complicated in any situation, and you will want to have someone that can provide you with quality information on how to manage HOA funds more effectively. This also applies to any business.
Spending the extra money on a salary for a qualified professional accountant will be more than worth the investment. It will also eliminate the costs associated with having additional financial information prepared from another source or correcting mistakes made by less qualified finance personnel.
Expensive Technology Solutions May Not Be The Right Answer
Many small business owners believe that they can cut back on salary requirements by investing into very expensive financial software. The use of this software is intended to compensate for any shortfalls the bookkeeping department may suffer. This may work if you have a very complicated financial system in place for your business, but it is often a very unnecessary investment.
Before you invest into any type of financial software, determine if it is right for your business or association. Many of these large programs are designed to help multi-national corporations and are just overkill for your standard business. You can reduce frustration and costs by purchasing a program that is more in tune with your business structure.
Avoid Hiring Your Family To Do Financial Work
Yes, your sister-in-law used to keep books for another business in the area and is willing to work for a very low rate, but this will not be a wise decision. When it comes to money, business, association or private, involving relatives also means that you are involving emotions. Emotions are the worst thing to have with business finances.
Your sister-in-law may feel obligated to give advice, make decisions on your behalf, or borrow money based on your finances. It always happens this way, and it always will. If you feel that you must hire relatives to work for you, do it in any other position in your business.
Additionally, HOA accounting should not be handled in a family run manner. Since there are so many private parties involved in the association, having an “insider” in the finance department always leads to mistrust and can cause privacy issues. It is always advisable to have an outsider manage finances for a HOA.
Mixing Personal And Business Finances
A tragic mistake that many small business owners make is operating their household and business out of the same bank account. Not only does this lead to a lot of confusion in the bookkeeping, it can also lead to extensive tax issues.
Another reason not to mix business and personal accounts is the business profit. When you are operating your household and business on the same account, a majority of your profits will automatically go into household expenses. No one means to do this, but it always occurs. You will see how much you have available in your account and make a purchase, only to discover later that this was business money. Always keep your accounts separated, even if it requires a little extra work.
Do Not Assume All Of The Bookkeeping Duties For Yourself
When you first begin your business it is easy to understand that you manage your own books. However, as time passes and your business grows, you will need ample time to develop and promote your brand to continue your success. This means that you are crunching numbers in the wee hours of the morning and lead to serious mistakes.
Business owners often try to assume too many responsibilities in an effort to reduce costs or save time. The truth is, you need to dedicate your time to managing and growing your business. Allow someone trained and experienced in accounting to document and track your financial information so that you can always see where your business is at financially, and where it is going.