As a retail business owner, you already understand how challenging it is to manage your retail firm from end to end. You likely spend much of your time supervising your staff, checking inventory, and maintaining relationships with suppliers, vendors, and other business partners.
However, you might be paying limited attention to your retail business accounting, even though it needs most of your time and focus.
Whether you have an accountant in place or handle your finances on your own, there are always chances of making some financial mistakes that can turn out to be bad for your retail business. Therefore, we will discuss those mistakes so that you will know what you should not do while managing retail accounting.
8 Financial Mistakes Retail Business Owners Must Avoid
Not Using a POS System
You know how important it is to keep track of your inventory levels. If you are not using a Point of Sale (POS) system and instead depend upon manual data entry, you are most likely spending more time than this process requires.
In addition to that, manually computing leaves room for mistakes and errors. Not using a good POS system can be one of your biggest mistakes. POS systems sync between and streamline your sales and inventory management processes. They help you track sales and the remaining items in your inventory, determine the best time to reorder stock, and much more.
Not Storing Key Financial Records
As a business owner, you mostly remain preoccupied with multiple tasks other than accounting. However, it is normal to skip some important transactions when you work on financial accounting, resulting in incorrect financial information.
Therefore, not storing key financial records can prove to be your biggest mistake. This can also lead to inaccurate financial reporting, penalties, and an IRS audit.
One of the best solutions to such issues can be hiring a full-time accountant in place, or if you want a better, cost-effective option, then outsourcing retail accounting services could be the best fit for you.
Using Outdated Financial Accounting Systems
Using a paper-based ledger might cost you almost nothing, but what if you lose it somewhere, or it gets stolen, or its pages are ruined by a water spill? Similarly, if you are using spreadsheets that anyone in your firm can access, you must realize there’s a risk of confidential financial information being stolen.
Moreover, if you are not saving the sheets on a cloud, creating a solid, reliable backup, your data will be less secure as hard drives are vulnerable to damage. You might be making a huge mistake if you are not getting beyond physical ledgers and spreadsheets and utilizing cyberspace and cybersecurity.
Not Tracking Profits, Especially According to Product Line
You might be selling a wide range of products, and some products make more profit margins than others. If you are tracking profits but not considering which type of products are getting you how much, you are doing it wrong. This restricts you from seeing the entire picture.
Now imagine, if you start looking into this by product line, you would be able to see;
- Which products are giving you fair profits
- Which ones are not capable of creating any profit
- Which ones are making a fortune for you
By evaluating profits in relation to their type, you would be able to upscale the sale of high-performing products and probably stop selling those that don’t generate profit, the fastest way to increase revenue.
Due to a shortage of time or expertise, retail business owners usually outsource accounting services to obtain accurate and detailed accounting information for better business decisions.
Not Monitoring Cash Flow
If you are not paying enough attention to your retail business’s cash flow, you are not only making a mistake but also missing out on opportunities to look into the trends of your financial activities. Cash flow, as the term itself indicates, represents the flow of cash coming in and going out of your checking accounts and is crucial to review regularly.
Once you start monitoring your cash flow, you will get detailed information on income sources, payment dates, expenditures, etc. This then helps you determine your income and expenses and prepare effective budgets accordingly.
Underestimating the Importance of Tracking Tangible Assets’ Depreciation
The retail business is no different from any other type of business when it comes to managing fixed assets. Your inventory is not the only asset you have; your fixed assets (tangible assets or long-lived assets) are also items you purchase and utilize for business purposes, such as a building space from where you sell computer systems, equipment, safe and affordable vehicles, stationary, and more.
These assets’ value depreciates over time and must be recorded to ensure you get the numbers right when it comes to preparing balance sheets or P&L reports. You are making a big financial mistake if you are not tracking this.
Keeping Accounting for Tax Season
One of the biggest mistakes some retail business owners make is leaving accounting for tax time. In contrast, now is the right time for accounting. Tax preparation is a time-consuming and complicated process that needs a high level of attention to detail.
If you wait till tax time, you might end up filing incorrect tax returns or miss the due date, paying penalties. Don’t make this mistake. In fact, maintaining regular accounting records in order to keep the important information organized in a specified manner can make tax preparation easier. This prevents last-minute panic.
Following the Wrong Accounting Method
In the initial years of your business, you may use a cash model as your standard accounting method. However, as you grow, it would be highly recommended to use the accrual accounting method as the best practice. With the accrual method, you will record revenues and expenses when they are finally incurred; it doesn’t matter if you have received the cash.
Many retailers who manage inventory on books are usually advised to use the accrual method to maintain a balanced profit and loss report. If you find yourself making these or any other financial mistakes, it is time to take action and change your method.
If you usually stay busy with your daily roles and responsibilities as a retail business owner, you can look for trusted retail accounting services.
Doing that will ensure experts manage your accounts while you get enough time and attention for value-adding business operations, taking your retail business further toward new heights of success.
Author: Stacey Howard has 6 years of experience in accounting. She has been working as an accountant with reputable firm Cogneesol– accounting and tax preparation service provider. She has a unique way of networking through her words across the globe. Her writings shine through various forums that speak about her profession. She is the proper interpretation of an accounting profession driven passion for writing.