“Absence of Annual Accounts”
I came across this study that attempted to understand our ability to predict a failing business model by comprising 35 years of research and review into one piece. Do you know what one of the most prevalent factors present in bankrupt or failing small businesses was? “Absence of annual accounts,” according to S. Balcaen. (S. Balcaen, 2006). Better said, ” a complete lack of financial reporting.”
The authors of this study attempted to review predictive models available to analysts for small business failure rates. This means nothing for us because I highly doubt we are going to research out and utilize analysts that can run predictive models on our success or failure. Would that be awesome? Of course! Do I just hire a random freelancer from Fivver to handle this for me? I do not think so, Tim!
The article did, however, reveal a plethora of data on the poor financial records of failed and dying business which included; complete lack of any records, spotty record-keeping that amounted to trash, variably inaccurate recording keeping that also amounted to trash, and flat out fraudulent transactions recording to simply boost numbers. Simply put, the authors pointed out that annual accounting has been largely criticized as a poor predictor of small business failure because the data is unreliable if not absent.
What’s Happening Now
Times have not completely changed for accountants such as me. The lack of accurate and consistent record-keeping in small business, and its relation to small business failure, is largely why our team created the Barklee Money Savvy Institute. We had to spread the word. That is why we unashamedly push the education and use of accounting software like QuickBooks Online. Technology is providing the entrepreneur with easy to use, mostly automated, accounting software that will greatly reduce our chances of becoming a statistic on the next 35 years of business failure.
What This Means for You
Whether you have been in your business for 5 years, or are just starting, remove the anxiety and fear that comes with not knowing your financial picture from month to month. Let articles and studies like the one referenced here be a major eye-opener to you that there are things we can do today to increase your chance for success. Sign up for our upcoming course on QBO basics or contact us today to set up your very own QBO account.
What You Can Do Today?
- Learn the basics of an online accounting software – we highly recommend QBO
- DO NOT attempt to start with accounting classes just to start your own business!
- Pick a day each month and set it aside for monthly accounting tasks.
- Accept and categorize your transactions from your bank feed.
- Reconcile your bank and credit card accounts with their statements
- Print off a Profit statement and monitor monthly trends.
Finally, stay plugged in right here for more accounting and financial tips. Small business can be run without debt, but you must keep track of your finances from the beginning. Your small business can have a niche focus by finding the key audience or product that makes most of your money, but you must keep great financial records to that. Financial tracking can be an efficient and timesaving task, but we must take that first step in creating the right habits. Stay tuned for more help!
Balcaen, Sofie, and Hubert Ooghe. “35 Years of Studies on Business Failure: An Overview of the Classic Statistical Methodologies and Their Related Problems.” The British Accounting Review 38.1 (2006): 63-93. Web.