GetFreeDemos.com

Chicago Accountant Reveals Next 5 Financial Mistakes Business Owners Make & How To Avoid Them

Now that the first 5 mistakes have been described in my first article and detailed in my associated whitepaper and podcast, here are . . .

The Next 5 Mistakes

6. NOT INVESTING ENOUGH IN YOUR BUSINESS

7. NOT PAYING ATTENTION AND ASSUMING THINGS ARE GETTING DONE

8. FAILURE TO UTILIZE THE RIGHT TAX STRATEGIES AVAILABLE UNDER THE LAW

9. NOT USING THE RIGHT TALENT FOR THE RIGHT JOB

10. BUYING THE LATEST SOFTWARE TO SOLVE ALL YOUR PROBLEMS

OK, there’s the list, six through ten.  Now let me explain to you what I mean for each of these points.

6. NOT INVESTING ENOUGH IN YOUR BUSINESS

As an accountant in Chicago, Illinois, I often see business owners making this mistake when the economy is beginning to slow or has slowed. The natural reaction for most business owners is to pull back on spending and often this only exacerbates the less than ideal conditions. Many business owners will immediately cut their selling and marketing budgets in an attempt to conserve cash. However, this is often the last thing you want to do in a slowing economy

Marketing and selling are the lifeblood of any business and so long as you are measuring results properly and you can demonstrate (through your managerial accounting) that marketing dollars invested are returning revenue dollars at a positive rate of return you should continue to invest in these areas. In fact, you might even consider expanding your marketing and selling efforts to take advantage of the fact that your competitors are likely pulling back and leaving you with a tremendous opportunity to expand your market share.

The other area that every business owner should be investing in is developing the skills that they possess and their employees possess. Especially in today’s day and age!  What makes more sense?  Investing in your business or some Wall Street fund that just lost you 50% of your capital?  I think you can guess what my advice as a Chicago accountant will be!

7. NOT PAYING ATTENTION AND ASSUMING THINGS ARE GETTING DONE

There will likely come a time in your business when it grows large enough that you will have to begin delegating authority and decisions to others.

This brings to mind several points:

First, you must be certain that the person to whom you are delegating has the skills and knowledge necessary to perform the task well. This might require some additional training, education, or skill development.

Second, you must be certain that the person to whom you are delegating approaches the task with the same level of importance that you, the business owner, do.  This person will be functioning on your behalf.

Third, you must look beyond the update reports your employees hand you and question the validity and accuracy of the information you are being handed. Don’t simply toss the report on a pile of 50 other unread reports or someday (perhaps soon) you will be surprised to find that your business is in deep, deep trouble.

Delegating authority is not abdicating authority! In the end your business will never be as important to anyone else as it is to you.  However with the proper training, monitoring, and incentives you can build a team that will allow the business to grow and allow you the work-life balance you desire.

8. FAILURE TO UTILIZE THE RIGHT TAX STRATEGIES AVAILABLE UNDER THE LAW

Albert Einstein once said “The hardest thing to understand in the world is income tax.” Boy was he right! The tax code is very complicated and often there are peculiar provisions for each industry. So it’s very important that your tax professional or accountant have experience in your industry to be certain that you are taking advantage of all of the various possibilities.

Let’s take something like a desk, a fairly common small business capital asset. There is a provision known as a Section 179 election that allows you to write-off the purchase price of that asset in the first year. Now the alternative to Section 179 is to depreciate that desk over seven years! So you can see that there is a significant tax benefit to Section 179 if you qualify to take it.

Contractors are one of many areas where I have special accountant expertise in the Chicago area.  Contractors with less than million a year in revenue have the ability to do what is called the completed contract method of accounting. What that means is they are not required to recognize the revenue from a job until the job is completed. This can sometimes be very advantageous when the contractor has jobs that stretch over multiple years.

For larger contractors, those with revenues exceeding million a year, there is something known as percentage of completion which provides the contractor the ability to recognize profits pro-rata along the way. In some instances this method can be very advantageous. In the end, you’ll end up paying taxes no matter what method you choose but a skilled accountant can explain the distinct advantages available to you depending upon your particular circumstances.

It is impossible for the average business owner to be an expert in tax compliance accounting and often what I see here in Chicago is that they are misled by what they read in the local paper, trade journals and other sources of information. In some cases I have seen costly mistakes made and penalties incurred, not because the business owner was trying to do something sneaky or illegal, but simply because the advice they had gotten was incorrect for their particular circumstance.

9. NOT USING THE RIGHT TALENT FOR THE RIGHT JOB

In my role as an Accounting-CFO I am frequently called upon to help my clients define their business culture and help them identify talent both within their existing employee pool as well as external to the company.

A second area I can bring specific insights is the concept of matching the right talents for the right job. This frequently manifests itself when I notice that high-priced talent within an organization is spending an inordinate amount of time doing busy work or paperwork that could easily be handled by a far lower priced administrative employee.

Often times as organizations grow the most talented individuals seem to accumulate or acquire an unusually high proportion of non-revenue-generating tasks simply because of their “get it done” nature. I’ll see vice presidents and even presidents of companies who are filling the copy machine, un-jamming the fax machine or doing the bookkeeping because they have always done it that way.  When all of these things should be done by lower paid employees, accountants, or simply outsourced, thereby freeing up the executive for additional revenue generating opportunities.

The flip side is also true though. I sometime see situations where lower level employees are performing critical tasks with little or no oversight from management or outside expertise. For example, to help control costs one Chicago based business owner was relying upon an internal bookkeeper to keep the day-to-day operations running and act as an accountant. This was fine until I performed an external audit on his business and found that the bookkeeper/accountant was in over her head and that the entire Accounts Payable and Accounts Receivable ledgers were in disarray! Let me tell you it was not a good day when that business owner suddenly realized that his company didn’t have the money to make payroll or replenish inventory!

10. BUYING THE LATEST SOFTWARE TO SOLVE ALL YOUR PROBLEMS

Accounting software is only as good as the data that goes into it and the talent that is using it. Yet all too often I have been called into situations where a business owner has bought new accounting software thinking that it would somehow miraculously solve their managerial accounting problems. This is simply absurd.

As an accountant in Chicago, I have found that no matter what accounting software you use, you must have the supporting processes in place in order to assure that the correct data is getting into the software package and just as importantly that the correct data is being accessed and displayed in a useful fashion.

When considering changes to your accounting systems you must be certain to take into account all of the investments necessary to make a successful change. Often times the cost of the financial software itself is relatively small in comparison to the impact on the organization from a training, downtime, and implementation perspective.

In some cases you may need to have the old system and the new system running in parallel for an extended period of time. It always seems to be that conversions to new systems are never as easy as they are promised to be and that they typically cost 2 to 3 times more (when all costs are accounted for) than what the business owner anticipated.

Remember, your accounting systems are the foundation of your financial house! You must be absolutely certain that any changes you make to the accounting software you use improve the strength and flexibility of your financial house’s foundation!