Thanks to the cloud, you’re more connected than ever to the numbers that power your business.
But having all of your financial data at your fingertips, 24/7, is a bit of a double-edged sword.
Sure, you can see your profit, sales, income, expenses, and other key metrics at-a-glance. Yet, if you fail to stay on top of this data — making sure it’s categorised correctly and complete — you could be missing the bigger picture.
In this short blog post, we highlight some of the worst offenders when it comes to managing business data, explain the consequences, and give you a few pointers to help keep things under control.
Examples of Bad Business Data Management
1. Incomplete data
All too often, we see outstanding bank transactions when reviewing a business’s financial information. And if the data is incomplete, then it isn’t correct. When transactions aren’t reconciled, it means they aren’t included within the accounts by the software. This, in turn, means the profit or loss figure you’re looking at isn’t accurate.
2. Incorrectly coded expenses
Costs can be excluded or categorised incorrectly, either because the chart of accounts hasn’t been set up properly, or via human error. This could result in a cost appearing as an asset, as opposed to an overhead, meaning profit has been accidentally overstated.
3. Not reporting a director’s salary and dividends correctly
If you’re paying yourself a salary and topping it up with dividends, you need to ensure that you’re reporting this in the right way. A dividend can only be paid if your company has turned a profit, so you need to be certain that A) your figures are correct, and B) there’s enough profit in the company after you’ve drawn a salary.
4. Not tracking your gross profit margin
Another simple yet avoidable mistake is failing to track gross profit correctly — or at all. By overlooking gross profit, you’re unable to determine profitability by project, service, or product. And if you don’t understand how much profit you’re making per product sold or job completed, it makes it more difficult to control costs and manage cash flow.
5. Not monitoring debtors correctly
Finally, some business owners have a hard time managing slow or non-payers. And if you’re not on top of this — generating accurate reports on cash owed each month — you could be left scrambling for income to keep your business afloat.
What Are the Consequences of Poor Quality Data?
If any of the above is rumbling on in the background, you could soon encounter the following challenges:
- Poor Decisions and Missed Opportunities – Bad financial data leads to poor decisions. And poor decision making can lead to poor choices and missed opportunities. For example, if you’re looking at the numbers and believe you’re in a better position than you actually are, you could plough ahead with an idea or investment that you simply cannot afford.And the flip-side of this is, if you think things are worse than they are, you could be reluctant to pursue a new and lucrative opportunity. The success and longevity of your business will always depend on accurate numbers.
- Tax and Penalties – Poor quality data can often lead to paying too much tax, or failing to account for a tax bill you then can’t afford to pay — which results in fines and penalties. It’s vital that you know where you stand (at all times) when it comes to HMRC.
- Lost Revenue and Earnings – Lastly, failing to track customer payments, who owes what, or monitoring your profit can all impact your bottom line. The longer it is left the worse the outcome.
Things You Can Do to Help
The good news is, everything we’ve highlighted above is avoidable — with the right tools and guidance.
- Platforms like Xero and Receipt Bank can help you categorise income and expenses quickly and accurately;
- And working with an accountant can give you an extra set of expert eyes, reviewing every last digit and decimal point to ensure everything is set up correctly and nothing is overlooked.
Want to learn more about managing business data? Book a quick 15-minute discovery session with Spark and we’ll explain the benefits of outsourcing your bookkeeping and accounting tasks.