So many companies come up with innovative products and services, build the best-in-class teams, and devise all kinds of strategies for business upscaling. However, a good portion of these business owners doesn’t pay attention to the cash flow as much as they should. It’s no surprise that about 50% of the businesses fail within the first 4 years.
There are several risks associated with ineffective tracking of profit and loss in your business projects. These are:
- Frauds: When your profit-loss monitoring system is flawed or ineffective, your employees could be tempted to steal money from the business itself. Believe it or not, it’s fairly common for employees to write cheques to themselves from their company’s account. You could be losing 5% of your annual revenue to frauds like these.
- Human Error: Reconciliation mistakes can often be costly. You could be making major business decisions on the basis of erroneous data, thus potentially opening a Pandora’s box.
- Cashflow Leaks: Cashflow leaks is the money you are losing for no reason. These should be identified and plugged immediately.
Now that we have established how ineffective monitoring of your profits and losses can cause monetary damage, it’s time to look at some of the ways you can avoid this from happening:
There are three types of financial statements that you need to track- balance sheet, income statement, and the cash flow statement. The first one shows the overall financial health of your business, the second one is about the business profitability reflected through the profits and losses, and the third one shows the liquidity.
There are two types of expenses:
- One-Time: These include replacing a damaged computer, an overseas business trip, etc.
- Recurring: These are your office space rent, utility bills, vendor costs, etc.
Every single business expense should be accounted for. The employees must keep the receipts of such expenses with themselves and upload the same on a centralized system through which you can assess the losses. This also helps in keeping in-house frauds under check.
Orders, Shipments, and Returns
If you sell goods, then orders and shipments can greatly affect your business performance. For instance, if orders are getting misplaced more frequently, and you have to resend them, then these additional shipping costs contribute to the overall loss. Similarly, if a customer returns a product back, then it’s money wasted in the form of shipping cost, as well as the loss of the sale itself.
Small businesses can only afford to employ the “essential” talent. Thus, they often keep marketers, branding experts, and accountants, etc. out of their core team. However, filing the correct amount of taxes is important. This has become even more critical now under the GST regime as you are expected to pass on the benefits of the new taxation system to your customers in order to avoid any action undertaken by the anti-profiteering authority against you.
There are various tax-deductible expenses that can be subtracted from your company’s taxable income. The more you add, the lower will be the taxes that you have to pay. However, to do that you have to track and record the appropriate expenses so that you can file your IT return properly.
Technology is the Solution
Technology, the Internet, Social Media, etc. have changed the way we do business today. In fact, these are one of the main reasons why a growing number of start-ups are able to achieve unparalleled success with a limited budget.
You don’t need an expert bookkeeper to monitor the profits and losses of your business project. Best-in-class expenses and invoice management software is enough to provide you a snapshot of your business cash flow.
It would greatly help if the platform of your choice is GST-ready and offers linkage of your business bank account directly with the accounting module. This can help minimize human errors and in-house frauds, and increase overall transparency in your business profits-losses.