Many of us have that recurring nightmare of being in Accounting 101 class in college on the last day of the term for the first time — and it happens to be final-exam day! You suddenly wake up sweating and panicking and realize you have never been that good in your own financial accounting. You feel like the unfaithful servant to whom the master says, “Give an account of yourself!”
Dreams have an uncanny way of mirroring life. Perhaps, there is a way to change reality by making our dreams more to our liking. In my friend’s case, he never had an Accounting unit his entire student life; so he went on to change his dreams by reading and studying about Accounting and Finance until he gradually overcame his financial woes.
Here are 5 tips (or principles) he shared to start having a practical and efficient personal financial discipline:
1. Have a budget
This is essential! No matter how little money you have, having a budget is a must. But if you do not have money at all, there seems to be no sense in having a personal budget. Wrong! Zero is the least money you can have. If you do not have a budget, then you will never have practice when you get some money eventually. Truth is, we all have some money, no matter how little; and knowing how to manage your money is a vital habit every person needs to develop.
2. Start with how much you need, not how much you have
For years, my friend made a yearly money plan starting with how much he needed to support himself and to implement his projects. After many years, he finally found enough income to rent a decent apartment, buy appliances, travel more often and start living his dreams (and reduce his nightmares). Being positive, especially during those times we are really down, is not mere pretending but practicing a lifetime of hopeful anticipation. As they say: Dreams are free; so, get dreaming!
3. Next step, obviously, is to have a realistic budget
Having a workable budget can often be depressing. (This is when you really need optimism!) Workable means allocating as much money for all essential expenses. You know you will need some more money to fill in the deficit and sourcing it is part of the Accounting problem. Realistic, ironic as it may sound, means figuring in what you need to overcome your deficit. This may mean a lot of waste of time; but it is an exercise in optimism and practice for the fat years ahead. The next step further explains what realistic means.
4. Every budget must include a deficit budget and a plan for filling the deficit
A plan for sourcing out the money you do not have is the best part of a personal budget. It draws out the creative juices hiding within you. It could be that business plan you have had for years for a small venture that will give you the impetus to go ahead and take out a loan and do it finally. Or, you can take an extra job to raise the funds you need for the needed capital. Work your plan.
5. It is all about discipline
Little or much, money is all about stewardship of something we do not own ultimately. People who presume too much and think they can do whatever they want with money lack the discipline and are not qualified to teach others who need budgetary discipline. And those who do not have enough money and think the same way will have a hard time acquiring the discipline they need to get over their financial problems.
Discipline is ultimately about perseverance and seeing our dreams come to fruition by the day.
Counting money and using it wisely, whatever is there left after all the necessary expenses, is a primary human activity most people still need to handle properly. And even those who have much of it have so many obligations they probably have more nightmares than those who know next to nothing about Accounting.
In the end, losing sleep over money is counterproductive. And so is losing money because you lack sleep. It is always better to be content with what you have and strive to be happy over other things money could not buy for money does not guarantee us happiness or peace.
A happy budget, remember, is one that you make because you are happy to be alive and have enough to last till the next pay day.
One of Australia’s leading cloud software integrators launched an online expo today to introduce a selection of cloud programs that connect with cloud accounting software.
Keeping the books is one of the more challenging aspects of running a company. It’s also one of the most important. Accounting errors can be damaging—even fatal—to businesses, but mistakes are surprisingly common. Here’s how to avoid five of the most common accounting mistakes that plague small businesses.
1. Invest in the right hire
You know the old saying: You can’t solve a problem by throwing money at it. But when it comes to accounting, the reality is that you can fix your problems by dedicating more resources. “The mistake I see most often is underinvestment in accounting, particularly from a people standpoint,” said Chris McKee, founder of Venturity Financial Partners.
Skimping is especially common among expanding businesses. They’ve outgrown their junior finance person and now need a senior controller, whose salary is likely to be $70,000 or more. But that sounds expensive, so they hire someone in the $40,000 range. The cheaper hire might be great at processing accounts payable transactions but likely lacks the experience necessary to fully maximize the financials and enable the company to grow.
“You can save a little on salary, but later you have to go back and fix all the mistakes, which can be a very expensive proposition,” McKee said. “And all that time you’ve been making bad business decisions because you didn’t have a handle on important metrics like gross margin.”
2. Don’t overspend on tech solutions
This is in fact not a direct contradiction of the first point. It’s a reminder that fancy new accounting software will not necessarily pay for itself.
“Many times, I’ve seen businesses overinvest in accounting software,” McKee said. However, few—if any—small businesses need the firepower of an expensive enterprise-level accounting system.
Before your business sinks too much into a system you don’t need, evaluate the tools that are designed specifically for small businesses. These platforms focus on the areas that concern small enterprises most—cash flow, invoicing, compliance, and the like—and won’t bog you down with unnecessary functions that don’t apply to your business.
3. Don’t hire your brother-in-law
Surprisingly, some business owners think it’s a good idea to hire family members to handle their accounting. This invites financial trouble, as well as domestic strife. Neither of which, it turns out, are particularly good for business.
“We see it all the time, having your spouse or your brother-in-law do the books on the cheap,” McKee said. “People do it because they’re starting a business, and they get a lot of people in the family involved. Maybe their wife or husband kept the checkbook at home, so they figure they can do the accounting.”
Hiring a professional might be more expensive than hiring a family member, but the cost will be easily offset by the lack of productivity-draining family turmoil.
4. Don’t mix business with personal finances
Business and personal finance are a bad combination. And yet, too many small business owners use a single checking account for both sets of finances, a problem that becomes worse still when they commingle the expenses on their company’s books. Was that 48-pack of microwave popcorn for your home or office? Who used the company credit card for $500 worth of video games? You need clear boundaries.
“It can get out of hand very quickly,” McKee said. “Then after two years, people realize they’re not making money because they spend a lot on themselves, and they put it all on their business credit card.”
Mixing business and personal finances can also cause problems with the IRS, which is now taking an aggressive stance on things like claiming your Caribbean vacation as a business expense.
“The IRS will take a sample of a period of a few months and, if they see a lot of personal expenses there, they will extrapolate that to the whole period under audit and compute taxes on it. It can get really expensive really quick,” McKee said.
5. Don’t do it all yourself
This is an easy one, especially since you probably don’t really want to do it all yourself anyway. The DIY approach works well enough when you’re starting out—your operation is small, and the books are simple. But as your business grows, you can easily find yourself in over your head and spending eight hours a day crunching numbers.
“The best investment of your time is rarely the accounting,” McKee said. “As soon as it’s practical, you should bring somebody in to take it off your plate.”