Top 5 Financial Mistakes Companies Make
Up until now, 2014 has been an eventful year. The NCAA established a college football playoff, the European spacecraft Rosetta landed on a speeding comet and the US economy had second quarter GDP growth of 4.6% – the strongest such quarter of the 5 year economic recovery. In order to help capitalize on the uptick in the business sector, and realize your company’s growth potential check out the top 5 most common financial mistakes companies make. By learning about these mistakes, our hope is that you will not only avoid them, but also maximize your business success.
1: Allocation of resources. Having trouble sticking to the budget? Take a moment to consider the cost-benefit of each expenditure and its’ necessity to the operation of the business. Could that fixed asset acquisition, or building upgrade be postponed until a more appropriate time arises? By regularly reviewing expenses, your company may be able to ‘trim the fat’ and eliminate those discretionary items that do not directly contribute to the bottom line.
2: Over-reliance of credit sales. While selling goods (or providing services) on credit has its benefits, a loosening of credit requirements to increase business, could potentially result in a strain on company resources and lost revenue. For those hard-to-collect accounts, repeated attempts at collection can prove very costly, especially if your company is not in the business of financing or servicing credit. Reviewing credit history reports of customers before approving financing, can immensely help to mitigate this risk.
3: Failure to make payroll tax payments. Every employee has payroll taxes withheld and paid to the Internal Revenue Service by the employer. A simple way to hedge against the risk of insufficient funds come payment time, is to set up a liability separating those payroll expenses from the general operating expenses. The establishment of the liability identifies the future payment to management, and prevents those funds from being used elsewhere. Failure to make timely payroll tax payments can result in steep interest and severe penalties. In an effort to avoid this, book that liability, or contract a payroll transaction service.
4: Lack of a plan. Running a business without a financial roadmap is kind of like planning a trip and leaving the GPS, map and smart-phone at home. There’s a chance the destination will be reached but it is more likely that a significant amount of excess fuel will be used during the journey. Set up a sales forecast and an expense budget to help benchmark performance along the way. For trouble sticking to the budget—see bullet 1.
5: Poor accounting practices. Solid and accurate financial reporting is the backbone to business decision-making, and the key to success over the long haul. Failure to do so will inevitably hurt performance, and could increase your company’s susceptibility to fraud. Keeping accurate books to track performance is not only smart, it’s easy. Hire knowledgeable accounting personnel or contract a firm.
Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.