With everything else you have to accomplish running a small business, you may think your back-office tasks can take a back seat. After all, they are typically administrative in nature and don’t directly affect your customers or growing sales. If they get delayed, or they don’t get done exactly right, it may not seem like it’s that big of a deal. However, that’s not always the case. Here are 5 mistakes you may be making in your back-office that are costing you money.
Delayed Invoicing
If you aren’t getting invoices out timely, you’re losing money. Here’s why. Let’s say you finish a project that you could invoice, but you get busy and you just don’t get it out right away. Two weeks goes by and then you realize you’re going to have a hard time making payroll next week, because your cash flow is tight. You realize you HAVE to get that invoice out now, but the client typically pays 10 days after receiving it. Now, you’re not going to have enough to cover payroll next week. You have to pull on your line of credit, which is going to cost you interest. Or, worse, you have to pull money from your personal account, costing you interest you could have earned on your savings. If you would have invoiced as soon as the project was complete, the client would have paid within their normal 10-day timeframe and you’d have enough cash to cover payroll.
Late Vendor Payments
Some vendors will offer discounts if you pay their invoice within a certain time frame. Others will charge you finance charges if you don’t get their invoices paid by their terms. The discount is typically 1 to 2% of your bill, which may not seem like a lot, but can really add up. Finance charges are typically 1 to 2% as well. These percentages are not annual percentages, either, so they compound. A finance charge of 1.5% on late payments equates to an interest rate of 18%!
Irregular Accounts Receivable Follow Up
As is the same with delayed invoicing, if you’re not regularly following up on your accounts receivable, you can’t have consistent cash flow coming in. Or, worse, you never get paid at all. If you have a customer that owes you $500 from a service you performed 9 months ago, but you’ve never followed up. How likely do you think they are going to be to pay that invoice when you send a reminder to them 9 months after the service was performed? Cash is king! You need to make sure you’re following up to get your cash in the door.
Manual Processes
If you are still using manual processes in your accounting and administrative tasks, you very well could be losing hundreds or thousands of dollars each month. First, manual processes allow for more errors to occur. The more you can streamline and automate your processes, the less likely you are to invoice to little, or pay someone too much money, both costing you. In addition, manual processes take a lot of additional time. If you have to hire additional staff in order to keep up with your processes, you’re costing yourself unnecessary payroll dollars!
Unnecessary Penalties and Interest
If you don’t file your sales tax on time, or mess up your payroll tax filings, you could be fined. And, those fines are not cheap! Just one day late could equate to thousands of dollars in fines. Even if you are filing on time, but you just file something incorrectly, you can be required to pay penalties and interest. Sometimes what seems like a way to save money will end up costing you way more in the end.
Mistakes, delays, or incomplete tasks can have a negative impact on your company’s profitability. It’s important to understand all the tasks required of your business to ensure you are staying on top of them. Set a weekly rhythm of invoicing customers, paying vendors, and reviewing your accounts receivable. Hire experts when tasks are beyond your expertise. Forecast your cash flow. Staying on top of your back-office tasks can help improve your bottom line.
Written by: Shauna Huntington