Whether you are an owner of a small business or a start-up, accounting is a big part of any companies. This is because accounting ensures adequate financial controls within your company, and helps you make better business decisions. Here are the top five common accounting mistakes in Singapore, with tips on keeping your books up-to-date and protected.
Errors of Omission
Busy collecting customers payments or purchasing new stocks? The inflow and outflow of cash sometimes cause business activities to slip through the cracks. When you forget or procrastinate to record transactions, they become errors of omission.
Make a habit of recording all transactions, regardless of how small or insignificant they are. This includes cash transactions at your storefront and the receipts from lunch meetings. If your company uses petty cash on hand to pay for day-to-day items, record these expenses immediately in your general ledger as well. Noting a payment on a credit card statement is just not good enough, especially if you are being audited by the Inland Revenue Authority of Singapore (IRAS).
Keeping accurate records prevents a multitude of issues down the road and helps your business capitalizes on tax deduction opportunities. There is also no reason to panic during audits. Inaccurate financial records, on the other hand, hinder your profitability projects and tax filing processes.
Failing to Set a Budget
A budget is a detailed plan of future receipts and expenditures. Think of it as a tool for providing control – it keeps your spending in line and also motivates you to perform. If your company is like most small businesses, you are working with limited funds. To avoid overspending, start planning for income and expenses with a set business budget – this takes out some of the guesswork in financial planning.
To forecast future revenues, profits and expenses, use your company’s past accounting records as a guide. You may prepare your company’s budget on a project basis, or for the year ahead. Charge your customers accordingly and ensure a healthy profit margin. If your business isn’t bringing in as much revenue as you predicted, think of new ways to increase sales, such as by offering discounts or promotions. If your expenses are higher than expected, find ways to reduce costs. It is also wise to plan for unexpected events such as supply chain hiccups and cash flow problems.
Not Backing Up Accounting Data
Have you experienced a hard disk failure or a dreaded ransomware hit? If you have meant to back up the financial data on your computer, now is the time. Accounting files are critical to your business as they protect your business’ continuity and longevity. Regularly backing up your records insulates your business from issues like computer crashes, loss of equipment and accidents. It also allows you to use and analyze your data for years to come.
Formalize back up processes, such as what data is to be backed up, when the data should be backed up, and where the data should be stored. Some businesses choose cloud backup, while some prefer to keep data in a vault. Be sure to test out the data restoration process regularly as well.
Mistaking Profits for Cash Flow
Profits and cash flow may mean the same to the layperson, but they refer to two different financial parameters. Cash flow refers to the money that is used for your business’ current and near-term obligations, while a profit is what remains from revenue after deducting expenses.
Imagine being wedged between suppliers who want their money now and buyers who are slow to pay. Though your company has a negative cash flow, it does not necessarily mean it is unprofitable! On the flipside, if your business is borrowing money actively, it is easy to derive a positive cash flow, though it may not be profitable.
Unless you are familiar with these accounting concepts or working with a qualified accounting professional, it is unlikely that you will have a clear picture of your company’s financial health.
Not Getting Help
As a small business owner, it is natural that you would try to wear all the hats you can to save costs. On top of tedious accounting and bookkeeping tasks, you are managing sales, marketing, customer service, business development, order fulfillment, project management, and the list goes on.
Keeping accurate and complete records for your company is an obligation in Singapore. According to IRAS, you must keep accounting records and supporting documentation for five years. If you find yourself dragging in a thousand different directions, the chances are you do not have enough time to manage critical administrative activities.
To ensure you keep accurate financial records, we recommend that you dedicate a set amount of time each week to manage your accounts or outsource this critical and essential function to an experienced corporate services provider. Outsourcing your accounts will ease your workload and help you channel your focus on running and developing your business to another level.
If your business is experiencing any of the above issues, find the right people and accounting solutions to keep your business in tiptop shape. Where accounting is concerned, it costs more to fix a problem than to prevent it in the first place. Always remember, prevention is better than cure!
At Corporate Services Singapore, we provide efficient end-to-end accounting services that help you build your dream company. Whether you are looking for assistance on accounting or taxation, give us a call at 6602 8286 or email us at firstname.lastname@example.org to understand more or get started today.