How to keep the holiday season from taking over your small business

Following the difficulties of the pandemic, which now include the potential danger of a fourth wave of COVID-19, South Africa’s small businesses face significant survival risks. During this time, businesses should be focused on initiatives that preserve, restore and maintain their profitability. Avoidance of errors is one such initiative.

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Common mistakes to avoid

Here are four common financial mistakes that small businesses make, along with suggestions for avoiding them.

  1. Not maintaining financial records

In the beginning stages of a business’s existence, you may successfully keep your invoices and receipts filed while keeping track of your transactions through an Excel spreadsheet. The manual approach to financial accounting is a sure way to wreak havoc on your company’s finances and makes it difficult to accurately forecast, manage expenses and assess profitability.

How to avoid this

Today, small business owners have easy access to various outsourced, professional accounting services, like those offered by MMS Cloud Accounting. These comprehensive services offer an easy alternative to keeping accurate transaction records, helping send and receive invoices, generating financial reports and managing cash flow.

  1. Running business finances from a personal banking account

If you’re a small and new company, you might be trading as a sole proprietorship rather than a registered business. This is often wise as it can minimise administration and accounting costs. However, using the same bank account for your personal and business needs is not advised, as it encourages a lack of transparency of business versus private financial matters and reduces visibility on the performance of the business.  Doing so also makes separating costs at financial year end significantly more difficult.

How to avoid this

Business owners should open a separate business bank account, reconciled monthly to the business bank account statement. This will improve the accuracy of reporting for SARS tax filing purposes, improve decision-making capabilities and promote visibility onoverall profitability.

  1. Spending unnecessarily

It’s critical to be cautious of business spending during difficult economic times, such as the one we are currently facing. Burning through business profits can be easy, even in environments where the business is correctly capitalised. For small business owners operating in an industry affected by the pandemic, it is adviseable to critically reassess ongoing expenses in favour of sustainability.

How to avoid this

Assessing the sustainability of business expenses involves utilising the financial data collected by budgets, forecasts and your business plan. Analysing this information in relation to ongoing expenses will help you determine what measures could be taken to save money. Overall, businesses should also avoid long-term financial commitments.

  1. Not meeting tax obligations

Personal and company tax returns need to be completed and submitted to SARS annually. During this process, it is important to ensure that you are claiming all relevant rax deductions, that all VAT and income tax returns are accurate and that settlement of these tax obligations does not incur debt.

How to avoid this

Consulting with a professional tax consultant is advised to ensure the understanding of your tax responsibilities and ensure that they are met. Experts in the financial accounting industry are up-to-date with all relevant tax rules and regulations and will ensure your obligations are met.

Maintain the success of your small business

Small business owners frequently make financial mistakes, this is a part of the learning process. Preparing your business budget, recording your expenditure and profits and seeking assistance from a qualified accountant will help you avoid poor financial decisions and keep your business on the path to success.

Having a professional accountant can make a notable difference to any small business. MMS Cloud Accounting specialises in assisting small to medium-sized businesses with outsourced accounting services. For more information on our services, please contact our team.