Do you know that only 5 in every 10 businesses make it to the 5-year mark in the US? And guess what, only 1 or 2 in that group of 5 businesses make it to the 10-year mark. Given businesses are considered to be truly successful only if they hit a 10-year mark, 80% of the business fail to achieve longevity.
“Why do small businesses fail?” has always been a fascinating business study and researchers today have been able to find the common reasons for business failure. While poor marketing, product offering, lack of marketing for the service or product, poor customer service, inefficient business model are some of the common reasons, guess what has topped the list has most common contributor for business failure- financial and accounting mismanagement.
If you are an entrepreneur or small and medium business owner you must be aware of the potential problems and challenges that can deter you from success. So in this blog here we are going to list out common financial and accounting mistakes that account for business failure all over the world. And also help you understand how you can seek help from trusted remote accounting firms like Back Office Accountants to avoid these mistakes from happening altogether. So, read on:
Common reasons why a majority of the businesses fail to take off and de-rail in the longer run:
Failure to budget: A budget is a formal spending plan for a business that is created based on income and expenses. It gives a clear picture of available capital to help you predict revenue and plan the spending based on a businesses’ short term and long term goals. Having and budget are as important as having a guide and navigator to reach your destination and according to a study made by Clutch, 61% of the businesses did not have a formal budget plan with them which explains the reduced success rate.
Cash flow management problems: 82% of the time it is poor cash flow management or poor understanding that eventually results in failure of business according to an independent survey and research performed by a U.S. Bank on small businesses. And why not, since most businesses do not focus on budgeting and hence fail to track and optimize income and expenses to manage the cash flow, working capital problems overtime.
Optimal cash flow management is important for every business even when your sales far exceed your expenses. For example, one of the businesses we know experienced a cash crunch even when they managed to double their sales. And this happened because even though they made sales, their Accounts Receivable collection lagged, followed by lax Account Payable process the business perennially experienced cash flow problems. At Back Office Accountants we tweaked their Accounts Payable Process and focused on optimizing Accounts Receivable for faster collection to improve cash flow and the business thrived.
Cash in-flow and out-flow are must be tracked, tweaked and optimized to have a healthy cash flow and have access to working capital. If you ignore the basics and run behind sales a business is bound to run into cash flow problems sooner or later. If you lack resources or expertise we advise you to take assistance from specialist remote accounting firms to get your cash flow management on point.
Credit & Debit Problems: Credit and debit problems be it due to low sales, economic downturns or poor cash flow management are another common reason for the failure of businesses. Given most businesses rely on easy credit options and loans to get their business going, high-interest rates, reduced lines, or even tighter lending systems will generally burden the business leading to higher levels of debt.
Poor Bookkeeping & Accounting: Budgeting, cash flow management, tax preparation, credit and debt problems – all the major catastrophes in most cases have a simple origin that is poor bookkeeping and accounting. Though accurate and efficient recording & tracking of business transactions is the fundamental aspect of good accounting it is easy to ignore this simple task which however can cost dearly for small and medium businesses. Without accurate and efficient tracking and recording it is certainly not possible to stay organize and plan your finances and businesses that lack efficient bookkeeping often suffer errors and fail to reach their goals in every facet of accounting.
One Simple Way to Improve Your Odds: Everything in a business interlinked with good accounting practices. For example, bookkeeping and accounting is a fundamental aspect of tracking and analyzing income, expenses, budgeting and tax preparation. Accounts Payable and Accounts Receivable are crucial for healthy cash flow management that avoid credit and debt problems. Bank and credit card reconciliation for financial insight and security. So far any business to achieve growth, longevity, and success accounting plays a fundamental and significant role.
Given how severely accounting and financial mismanagement can impact a business, the simplest way to improve your chances of success is to focus on getting the best accounting services on board to optimize your finances.
However, setting up a dedicated account department that can help you with all your accounting needs can be costly and may not be practical for a business start. And this is where we folks at remote accounting firms like Back Office Accountants can help.
How Back Office Accountants can help businesses with our specialist accounting Services?
With a team of dedicated accountants, Accounts Payable and Accounts Receivable specialists, Reconciliation experts and accounting resources, we provide Full Service Back Office Accounting Services that can cater to all your requirements.
That said, if you already have an accounting team and are looking to plug gaps in your accounting department we also offer specialist accounting services like Accounts Payable Services, Accounts Receivable Services & Bank and Credit Card and Reconciliation Services to help you achieve your performance goals. So if you are a start-up or an SMB looking for either specialist accounting services or full-service back-office accounting services, you can find more information on our services here: https://www.backofficeaccountants.com/