most common supply chain management mistakes

5 Most Common Supply Chain Management Mistakes You Need to Avoid

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It’s never a good idea to make mistakes in business. But while some mistakes are not that big of a problem, other mistakes can really hurt your business. Mistakes in the supply chain management fall into that category. Here are the five most common supply chain management mistakes that you should avoid.

1. You are Rushing with the Launch

The idea of launching their new product “now or never” has hurt numerous companies. In their zeal to put their shiny new product in front of the customer, they neglected a number of things, while entangling themselves into huge deals.

Before you launch a new product or protocol, be sure to check if your ordering and distribution system can cope up with it, especially if you expect a high demand, like during big holidays.

2. You are Prioritizing by Spend

Prioritizing or quantifying functions by spend made sense back in the 1990s, but not any more. At the time, it was common to have a single supplier for a certain product or item, but that’s no longer the case.

Today, supply chain managers realize that means that having 1 supplier for 1 item means walking on thin ice so to offset any disruptions, they bring in additional suppliers. The bottom line here is never put all your eggs into one basket.

3. Your Risk Management is Short-Sighted

Supply chain management is nothing if not full of risks. This is why you need to prioritize risk management and make sure your managers are ready and able to deal with all kinds of risks in a proactive and efficient way.

This way, you’ll be able to better react to any problems that arise, whether they have to do with increased demand, not having enough items in stock, poor quality, vendors or something else.

4. You Don’t Know Who is Responsible or Accountable

Who is responsible for the disruptions in the supply chain? The upper management will hold the Chief Procurement Officer or CPO accountable, but who can the CPO hold accountable? When no one is accountable, it creates confusion and lack of clarity when actions are needed.

5. Lack of Security

Security breaches are no uncommon, especially if you are operating online. These days, newspapers are filled with news about one company or other that got hacked. Your supply chain is at no lesser risk in that regard than other areas of your business and you need to ensure that you have sufficient security control. This goes for not just physical, but also (and perhaps more importantly) cyber security.

Additionally, make sure that your vendors don’t disclose sensitive information about your company or customers or do anything else that can harm your business. As well, be sure to monitor the security of your product throughout the entire chain to prevent any theft, or tampering, all the way to the end user.


These were just 5 supply chain management mistakes that you should be aware of. Of course, there are many others, so if you know of any that you think should be included here, let us know in the comments below and don’t forget to sign up for a free Purchase Order Plus trial.

supply chain management tips

5 Supply Chain Management Tips to Get You On the Right Track for 2019

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A supply chain is only as strong as its weakest link. To develop one that works for your company, you need to take a lot of things into account. That’s not as easy as it might sound, so here are 5 supply chain management tips that will help you streamline your SMC and be ready for 2019.

1. Don’t Rely on Just One Supplier per Product

“Don’t put all your eggs in one basket” is a really nice saying and more than applicable here. You should never rely on just one supplier per product. No matter how good they are or how good of a raport you have with them, there is always a chance that something will go wrong.

For instance, perhaps you have a supplier in a country overseas and that country gets hit with a natural disaster or war. In that case, they will be unable to deliver your product. This is why you need to have a plan B or a backup supplier.

2. Integrate Supply Chain Management with Other Systems

Adding an integration layer to your SMC, will allow you to share vital information between systems owned by yourself, your partners, suppliers and finally  customers with much more ease and efficiency. As every transaction goes through a number of systems, such as finance, ERP, manufacturing and sales forecast, integrating it will make things quicker.

3. Be Sure to Train Your Personnel Accordingly

Don’t assume that your employees will know exactly what they need to do. Often, you’ll be in a situation where you are introducing a new software suite or welcoming a new team member and you won’t be able to just point them in the right direction and say “go”.

Don’t think of internal training as a waste of time. Think of it as an investment instead. By investing a little time and effort here, you’ll be saving a lot of time and money in the future.

4. Use the Latest Technology

Stuck in the stone age? Don’t be! Look at all the successful supply chains companies use today. They all use the latest technology to help them handle their inventory, logistics, manpower and more. So, while you’re stuck there, doing things “the good, old way”, they are using the latest technology and software to be miles and miles ahead of your company.

In other words, if you are still using spreadsheets, stop. You know how we talked about the weakest link in the supply chain management? Much too often that’s the humans and their guesswork. Good technology can help you eliminate that (guesswork, not humans, of course).

5. Make Sure Your Business and Supply Chain are in Perfect Alignment

Your supply chain should take top priority in your business. Unfortunately, too often the upper management has other things in mind and forgets about the supply chain. A good supply chain manager is there to remind them and to put them back on the right track as far as an effective supply chain goes.

Do you have any other supply chain management tips that you’d like to share? Let us know  about them in the comments below and don’t forget to sign up for a free Purchase Order Plus trial and improve your PO processes.

what is LIFO inventory valuation method

LIFO Cost Flow Assumption Method – How Does it Work?

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In the previous post we explained one specific method for cost flow assumption called “first in, first out” or simply FIFO. In the same article we also touched on another method called LIFO. It’s time to explain what it is.

LIFO stands for “last in, first out” and it differs from FIFO in that it expenses the most recent (latest) cost of items bought as the cost of sold goods. What this basically means is that the oldest cost of goods are in turn reported as inventory.

For example, the company buys three air conditioners. One for $200, another for $250 and the last one for $300. Under LIFO, the company will ship the item bought for $200. However itt it can report the cost of sold item as $300 (under FIFO it would be $200). This will be the first cost the company reports. The inventory will report the older ones of $200 and $250.

What are the Uses for LIFO?

LIFO is a very popular method, particularly in times of price inflation. That’s because it works under the assumption that the inventory cost gets bigger over time. In that case, the cost of the newest purchase is always higher than the ones before it. This means that the cost of goods sold will be shown as the most recent cost, while the final inventory balance will be calculated at the earlier cost.

For a company, LIFO allows it to report a lower profitability and postpone its recognition of income taxes. This leads us to probably the biggest issue with LIFO. As it is only allowed for income tax deferral, LIFO is banned under the International Financial Reporting Standards (IFRS), but it is still in use in the US. However, you need to get the International Revenue Service (IRS) approval. Otherwise, companies might use it for tax evasion.

Another problem with last in, first out method is that such a scenario rarely happens in practice, only in theory. For instance, if a company is using LIFO, that likely means that a good portion of its inventory is old or even obsolete.


Despite its problems, LIFO is still a popular cost flow assumption method (although probably not as much as FIFO). I hope this post helped you better understand it. If you have any questions or comments, let me know in the comments below and don’t forget to sign up for a free Purchase Order Plus trial.

FIFO method explained

A Look at FIFO (First in First Out) Inventory Valuation Method

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Among the many inventory valuation methods you can use to determine your cost flow, one method stands out. This method is called First in First Out or FIFO for short. In this article, we’ll explain what FIFO is and how it works.

What is FIFO?

FIFO is a cost flow hypothesis that the first item bought should also be the first that gets sold. This is in fact in theory the most accurate inventory valuation method as for most companies, this matches their actual flow of goods the most.

According to FIFO, the first item that the company buys (first in) is also the first to be sold (first out). What this means is that the cost of older inventory gets assigned to the cost of sold goods, while the cost of newer inventory gets assigned to the ending inventory. As a result, the items left in the inventory are accounted for at the cost they were last obtained for and the asset recorded on the balance sheet will most closely match the actual cost for which it could be purchased in the market.

How does FIFO Work – an Example

So how does FIFO work in practice? Let’s take a company, we’ll call it Gothic and how they might estimate their inventory value for the period between 1st and 30th September.

Sep 1 Beginning Inventory 50 items @ $20.00 per unit
5 Sale 15 items @ $17.50 per unit
11 Purchase 25 items @ $16.00 per unit
17 Sale 30 items @ $22.00 per unit
23 Purchase 20 items @ $17.50 per unit
26 Purchase 50 items@ $20.50 per unit
29 Sale 75  items @ $21.00 per unit

Okay, let’s take a look at what we got here:

Units Available for Sale = 50 + 25+ 20+ 50 = 145
Units Sold = 15+ 30+ 75 = 120
Units in Ending Inventory = 145− 120 = 25
Cost of Goods Sold Units Unit Cost Total
Sales From Sep 1 Inventory 50 $20.00 $1,000
Sales From Sep 11 Purchase 25 $16.00 $400
Sales From Sep 23 Purchase 20 $17.50 $350
Sales From Sep 26 Purchase 50 $20..50 $1,025
145 $2,775
Ending Inventory Units Unit Cost Total
Inventory From Sep 29 Sale 25 $20.50 $512.5

Difference Between FIFO and LIFO

A comparison between FIFO and another inventory valuation method called LIFO presents itself automatically. So, what is different here?

Unlike FIFO, which, as we already explained, looks at the oldest items first for expense, LIFO does this with the most recent ones instead.

We’ll get more into LIFO and how this method is calculated another time. For now, just remember that FIFO and LIFO methods will give you different inventory and cost of goods sold (COGS).

Problem with FIFO

The biggest issue with FIFO is that, since it starts to expanse at the beginning of the inventory, it doesn’t match the income statement quite so well. This results in the revenue from the sale being often matched with a cost that is outdated.

For instance, if our company would purchase two trucks, one at $75,000 and the other at $90,000, under FIFO the sale of one of them would lead to an expense of $75,000, which is an outdated cost.


First In First Out method is the most natural inventory valuation method there is, which is why so many companies (including imaginary ones like ours) use it. That being said, it is not without it’s flaws, as we’ve seen.

What do you think of FIFO? Do you use this method or some other? Let us know in the comments below and don’t forget to sign up for a free Purchase Order Plus trial.

pros and cons of dropshipping

Does Dropshipping Work? Pros and Cons of Dropshipping

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If you are looking to start an online retail business one option you have is to start dropshipping. However, dropshipping is not for everyone and it comes with both advantages and disadvantages. Here are the main pros and cons of dropshipping you should know about before embracing this business model.

Pros of Dropshipping

First, let’s hear the good news and what are the pros of dropshipping.

  1. Lower Overall Risk

As a retailer the biggest problem for you will be the need to sell all of the inventory you have in stock. What you don’t manage to sell just becomes an expense and you don’t want that. With dropshipping, these risks are gone as you get to aling your store with what your customers really want and you pay only for what you sell.

  1. Low Inventory Cost

If you own a warehouse you’ll find the cost of keeping your own inventory to be one of your primary money-suckers. But in a typical retail fulfillment model, there’s no way around this. Dropshipping enables you to focus more on building your brand and strengthening your connection with the customers instead of wasting time and money on these issues.

  1. Lower Startup Costs

Starting a retail business is not cheap.Even before you really have customers, you need to have a significant inventory and that requires a good deal of capital. This means you are getting into a big risk. What if the customers don’t like or want or need what you are selling? You’ll end up with a full warehouse of items you can’t do anything with. With dropshipping you don’t need to have starting inventory. Once you find customers, you can start thinking about inventory.

  1. You can Offer a Wider Variety of Products

With dropshipping you can offer a larger variety of products to your customers and not worry about warehouse space and overhead costs. Think about it. What do customers want the most? More choices.

Okay, those were the pros, now let’s talk about the cons of dropshipping to give you a full picture.

Cons of Dropshipping

  1. It’s Highly Competitive

You didn’t really think you were the only one to think about this did you? Dropshipping has been around for years now (since 2006) and dropshippers come and go all the time because it is so highly competitive. It all comes down to lower entry capital. True it’s lower for you, but also for everyone else, so get ready for some tough competition.

  1. Profit Margins can be Very Low

Great, now need to stock inventory, low entry cost, low overhead. Sounds like a perfect deal. But guess what else is low. Profits. As a dropshipper, most of the money won’t go your way, but toward the wholesaler who supplies the goods. You need a lot of orders just to get above zero and make some profit. And then you need to start thinking about how to manage sales orders, marketing expenses, keeping your own website and all that stuff.

  1. You’ll Have Less Control Over the Supply Chain

You win some, you lose some. If you hand over the reins to someone else, you lose much of the control over the carriage and that’s exactly what happens here when you let someone else handle your shipping process. What if the supplier screws up the shipment? Who will the customer blame, you or him?

  1. Potential Legal Problems

Most new dropshippers think it all comes down to finding the cheapest supplier. But what if that supplier is not legitimate? A lot of wholesalers come from way of China and Asia and there’s usually no telling where they got their inventory from. Also, what if the supplier uses a trademark or logo that is not his? The moment you try to sell these items, you become complicit. The best way to avoid this is to use a Dropshipping Agreement Contract.


As you can see, dropshipping is not all black or white. It has both advantages and disadvantages, like any other business model. Hopefully, you now understand the pros and cons of dropshipping and what you’re getting into.

Do you have any questions or comments about the pros and cons of dropshipping? Let me know below the articles and don’t forget to sign up for a Purchase Order Plus free trial.

dropshipping explained

Here’s What You Need to Know About Dropshipping Before You Start

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If you are working in retail or have an online business, you probably heard of dropshipping. For the past few years, this has been a buzzword in the world of online business and retail (just take a look at Ecom Empires for refference), much like AI in programing or Khabib Nurmagomedov in MMA. But what is dropshipping (or drop shipping, however you want to write it)?

What is Dropshipping?

Dropshipping is a retail fulfillment method in which the seller doesn’t stock product it sells in a warehouse of its own. Rather, you buy the item you have an order from the customer from a 3rd party, usually a wholesaler. This wholesaler then ships the product directly to the customer.

You’ll probably agree that this is much faster than if the wholesaler sends the item to you and you to the buyer. In fact, as the seller, you never have any contact with the product itself.

Today, dropshipping is a highly profitable business (as you can learn from numerous success stories on the Internet, but it really became popular about 12 years ago when AliExpress gained a foothold in America. Before 2006, most people never even heard of this term, let alone considered that it might earn them a ton of money. Once people began to understand the benefits that this business model brings, such as low entry cost, it took on like wildfire to such an extend that huge ecommerce businesses such as Zappos are now basically dropshipping businesses or at least base their business around it.

What’s the Difference Between Dropshipping and Standard Retail?

The main distinction between a dropshipper and a standard retailer is that the first doesn’t own the product he sells, while the retailer does. That means the dropshipper doesn’t keep items in a warehouse or otherwise stock his inventory.

Instead, the dropshipper buys the product when he needs them from a wholesaler or directly from the manufacturer and fulfills orders that way.

Is Dropshipping for You?

You likely heard many successful dropshipping stories and thought “okay, if they did it, I can do it to”. But to every success story, there is at least one flop. You see, dropshipping is not easy, not quick and not for everyone. Think carefully before you jump the bandwagon.

If you are looking for a low-risk, low-investment way to earn money online, dropshipping could be the right choice for you. It’s also a pretty good starting business for novices or someone who already has a store, but wants to try selling a new item they typically don’t keep in stock. That way, the risk is significantly lower if it turns out the customers aren’t interested in that particular item.

On the other hand, if you are thinking about starting dropshipping because you are looking for a quick buck, then this business model is probably not for you. Another thing that might pull you away from it is the fact that you’ll have  much less say regarding customer satisfaction since they’ll be in as much contact with the wholesaler (who’ll send them the item) as they’ll be with you.


Okay, I hope this article helped you understand dropshipping a bit better and whether it is something you want to pursue. If you have any questions, please let me know in the comments below. Also, if you haven’t already, sign your email to try Purchase Order Plus software for free. POP will help you handle purchase orders much easier on  your mobile devices.

9 inventory management tips to save your business

9 Inventory Management Tips that Might Just Save Your Business

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Since there are no two companies with exactly the same inventory and stock or the same supply chain, inventory management is therefore different from company to company. That said, you should strive to customize your inventory management system in such a way that it minimizes human error and maximizes productivity. Here are 9 inventory management tips that might just save your business and increase cash flow.

1. Plan for the Worst

Things rarely work out exactly as you plan them in your head. The same goes for inventory management, needless to say. Don’t think if something will happen, but when it will happen. This way, when the problem does occur, it won’t take you by surprise and you will be ready to tackle it.

Be sure to know the risks that are in front of you and the problems that might arise. For example, the manufacturer might run out of the product just when you need it to fill the orders. Or, you run out of warehouse space. Here, it pays out to ask a question, “what is the worst that could happen” before starting a new enterprise, just like stoics do.

2. Know Who is Responsible

Inventory management should be done ad-hoc. You need to have a person responsible for it. Whether that person is you, if you’re the owner or you hire a professional inventory manager is up to you and will depend on the size of your business, how big your inventory and stock are, the size of your purchase orders, how many clients and vendors you have and so on.

The important thing here is to have someone you can wake up in the middle of the night (please don’t do that literally) with a question about the state of your inventory and get an accurate answer.


FIFO or First In First Out is one of the key principles of inventory management where the oldest stock (first in) gets sold first (first out). This is an important principle you should hold on to if you have product that are susceptible to spoilage such as food.

That said, FIFO can be used for non-perishables as well. For example, new mobile phone models are released every few months. If you have a stock of them in your warehouse, you need to move them quickly as they will lose value the longer you keep them (customers are looking for new and better models).

Interestingly enough, FIFO is also used in computing, where it represents a method for organizing and manipulating data buffers. Namely, the oldest (first in) needs to get processed first (first out).

FIFO won’t work if your warehouse is not adequately organized. If you’re running your own warehouse, be sure to add a new product from the back and move old ones to the front.

4. Valuable Product Prioritization

Not all your products are equal. Some will simply get you more money than others. That’s basically the Pareto principle in action, which in this case, means that 80% of demand will be generated by just 20% of your products.

It is with these 20% that you need to put your focus the most. Then the next 30%, which will generate 10% less and finally, the remaining 50%, which typically generate only 10%. Of course, don’t take these percentages too literally, maybe it won’t be 20%, but 15% of 25%, but the principle is the same.

5. Set Par Levels

A “par level” represents the lowest amount of the product that you must have on hand and it’s a good thing to set them for all of your products. This gives you enough time to order more when you see that you are soon going to run out of stock.

Par-leveling does requires some upfront research, but it will make your inventory management considerably easier and allow you to make decisions about the product quicker. Of course, keep in mind that you don’t always need to order the same amount. Keep in mind the seasonality and other factors before you set par levels.

6. Audit on  Regular Basis

Be sure to audit your inventory regularly. This is important if you want to know whether all your reports (warehouse and others) match. Here are a few methods that will help you with this:

  • Spot checking

Spot checking involves choosing a single product, counting it and comparing to what you should have. This is a very good method if you do a full physical inventory and have a lot of products or often run into problems (such as low stock).

  • Physical inventory

Many businesses count all their inventory at once at the end of the year since this ties in with filing income tax. The problem with this method is that, if you have a lot of products, doing physical inventory can be very time consuming. Also, if you do find an error, it will be very hard to deduce where it came from just from an end-year inventory.

  • Cycle counting

The first two methods mean doing a full physical inventory, but that might not always be the best choice for an inventory audit. Instead, what you can do is use cycle counting and check  a different product at the end of the week or month. Typically, you want to count the higher value items more often than lower value ones.

7. Think About Dropshipping

You’ve probably heard someone say they are opening a dropshipping business or that they are running one (and often making a lot of money) and wondered, what is dropshipping? Basically, dropshipping differs from other retail fulfillment methods in that you don’t keep the products you sell in the stock, but buy them off from a third-party (usually a wholesaler), who then ships the product directly to the customer. That way, you don’t have to handle any inventory and can concentrate on acquiring customers.

You might be wondering, why doesn’t the wholesaler sell the product himself? One reason for this is that the wholesaler may not have the customer-acquiring, product promotion or selling tools that you do, so this is usually a win-win situation for both.

8. Have an Action Plan for Excess Stock

Poor sales forecasting inevitably leads to excess stock. To prevent this, you need to have two “task forces”. One will be responsible for selling off that excess inventory, while the other looks for the cause of this inefficiency. Of course, these two task forces need to communicate well, otherwise the whole plan will be liable to failing.

9. Accurate Forecasting

Accurately predicting demand is an important part of inventory management. A couple of thing that you need to consider when forecasting your future sales are:

  1. Market trends
  2. Growth year this year
  3. Guaranteed sales (subscriptions and contracts)
  4. What were the sales like last year on the same week or month
  5. Upcoming promotions
  6. Product seasonality
  7. Overall economy (consider both local and global economy if you sell internationally).

There are many other ways to improve your inventory management, but these 9 inventory management tips should help you operate a more effective supply chain, improve your cash flow and run a successful business. So don’t waste time and implement these tips today.

Do you have any questions or have any other inventory management tips to share? Let’s hear from you in the comments below and don’t forget to sign up for a free trial for Purchase Order Plus.

Why it's a good idea to use a cloud ERP

6 Reasons to Use a Cloud ERP Solution

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If you have a growing business, you’ll soon find that the way you’ve managed it to that point no longer works. For SMEs, cloud ERP solutions can be a blessing and significantly improve their operations. There are at least six reasons why this is so.

Take a look at the six biggest benefits a cloud ERP solution can bring to your business.

1. Lowers Operational Costs

If you are using an in-house ERP system, that’s a step in the right direction, but it’s not always the cheapest. Usually,  you have to deal with installing new hardware and need people that know how to work on it and maintain it. If we add licences, you can see how much this can impact your budget.

Cloud ERP solutions are often available on a monthly subscription. This means you can use them when you need them and not think of the ERP 24/7. In addition, cloud-based enterprise resource planning solutions can be customized per your specific needs, so if there is something you don’t need, you can leave it out and not pay for it.

Finally, when it comes to costs, a cloud-based ERP is already made and ready for your use, while building a new solution takes a good deal of time and money and those are not things in great supply.

2. Greater Scalability

Cloud technology has a number of benefits, but one in particular stands out and that’s the ability to scale it to your own needs. Of course, the same applies to cloud ERP. Let’s say, for instance, that you bought a licence but in the meantime your business has grown in a way that the current ERP cannot keep up. No problem, you just scale your licence per your needs and get a bigger one.

3. Better Accessibility

If there’s an Internet connection around you, you can access the cloud. For your business, using a cloud ERP software can offer several benefits, including:

  • Allowing your employees to access and use the ERP when travelling
  • The ability to go global. If you use an in-house ERP, you need several system if you want to go global. A cloud ERP will work across the globe.
  • Offers more flexibility for your employees. Today, more and more companies give their employees an option to work from home. If you have staff that takes a long commute just to get to work, they will be more than happy to use a cloud ERP that allows them to work from home.

4. Enhanced Security

One of the biggest reasons why some businesses didn’t adopt the cloud from the start is the perceived lack of security when compared to storing their data as they used to, or on-premises. This really had less to do with security and more with not wanting to abandon already established practices.

Today, reputable ERP cloud vendors  use the tools and have the resources that you don’t have access to and that can significantly improve your security. Simply put, if you want to ensure that your sensitive data is safe, partnering with a cloud vendor is a much safer option than using an in-house system.

5. Stronger Support

With on-premise hosting, you often get only the basics and need to buy additional packages, including support. This can be a hassle when you need to upgrade your software. What’s different with cloud ERP is that vendors include support as part of the deal and will provide it 24/7 in most cases.

6. Improved Performance

All that you really need in order to use a cloud ERP is a good Internet connection. This means you don’t need to worry about infrastructure or that the ERP system will hog all your resources, which is not the case with an in-house ERP. Naturally, this frees up those resources for you to use them on other business processes.


Enterprise resource planning in itself provides many benefits to a small business, but a cloud ERP is the next step. These six points were just some of the many benefits to using such a solution.

Are you using a cloud-based ERP? Do you know of any other advantages  besides these? Let us know in the comments below. Also, if you like software that makes your life easier, you  should give our Purchase Order Plus a free try. POP lets you easily create, approve and send purchase orders on any device, including your mobile phone or tablet.

be careful of these small business accounting mistakes

8 Biggest Small Business Accounting Mistakes You Need to be Aware of

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When running a small business, finances matter a lot and that makes the job of an accountant all the more important. Failing to recognize accounting as an integral part of your business can lead to cash flow problems and put your entire business to a stop.

Accounting deserves much more attention than it sometimes gets. So, to make it work for you, you need to be aware of the common small business accounting mistakes you can make.

Here are the 8 biggest small business accounting mistakes you need to avoid:

1. Not Taking it (Accounting) Seriously Enough

We get it. Your business is small, you don’t need a team of bookkeepers and accountants. But that doesn’t mean you don’t need a professional to make sure your books are in proper order. You, sitting with a calculator in 8PM in your apartment, checking your new company’s general ledger, does not count as “professional accounting”.

In accounting, you need to record every expense and profit, no matter how small or seemingly insignificant it may seem to you. Everything needs to be properly documented and classified in accounting.

Without taking accounting seriously, there is little hope that it will give you an accurate picture of your business finances.

2. Not Separating Home and Office Expenses

According to Small Business Trends, 69% of entrepreneurs in the United States start their new business from home. What many of them fail to do is separate their business from their house when it comes to books.

Don’t put your new refrigerator as a business expense (even though it contains soda you’ll be drinking while working) or the new laptop you’ll be using for work as a home expense (even if, from time to time, you use it to check your Facebook or Instagram).

The same goes for your credit card and bank accounts. Keep them separate for business and home and have one for each. Yes, it is a bit more effort, but you’ll be happy you did it in no time.

3. Not Reconciling Your Books and Bank Accounts

Reconciling your books means making sure that your account balance is without errors and matching the balance in your bank account. This is something you need to do on a regular basis.

This is important if you want to get an actual image of your current financial situation, so be sure to reconcile your books with the bank account at the end of each month and quarter. This way, you can spot and mistakes and make sure your books are in sync with the account.

4. Poor (or No) Communication with the Bookkeeper

We already established that accounting and bookkeeping are not the same. However an accountant needs to have a good communication with the bookkeeper. The two are not rivals, competing against each other, but need to work together.

This means keeping your bookkeeper in the loop about every expense you incur as part of your business so they can properly log it in the general ledger. It saves time for both you and the bookkeeper.

5. Forgetting to Pay Your Taxes

A lot of people have this notion that they only need to document their taxes once per year. That is not true and can cause some serious legal problems for you and your business. You need to pay your taxes every month and your employee tax every two weeks.

There is a “saying” that “nothing is certain, only death and taxes”, and unfortunately, too many small businesses never heard of it. If you are going to run one such business, be sure to familiarize yourself with how taxes work and the entire tax process. Sooner or later, they’ll catch up to you.

6. Not Appointing a Budget for Every Project

When starting a project, you need to be aware of how much it will cost you in the end. Failing to do this usually leads to paying much more than you originally planned. To make sure that doesn’t happen, you need to appoint a budget for every project you have.

Let’s say, for example, that you own a web design and development company and you have several clients. If a new client comes in and ask you to make him a new website, you need to assign a budget to it to see whether it will generate profit or cause you a financial loss.

7. Thinking that Profit Equals Cash Flow

Profits and cash flow are not the same. Let’s say you  just closed a $100,000 deal that should take you four months to complete and it is going to cost you $70,000. That’s a $30,000 profit. Not bad for four months, right?

Wrong. What if, for instance, it takes you six months or a whole year to finish the project. You need to take into considerations the delays that will inevitably pile up on this project. Even something as mundane as a programmer not showing up for work today can slow down the project and increase its cost, not to mention something much bigger happening.

The bottom line here is that you shouldn’t write down each deal as it occurs. Because, if you do this, it will be easy to get the wrong picture of your finances and that eventually lead to further wrong business decisions along the line.

8. Not Following Technology Advancements

Look, you don’t have to use every new technology that comes, but in general, you need to keep up with it. If you are still doing your books in paper and your competitors are using software like Xero, guess who has the advantage?

Technology can be your friend, or at least make your life a whole lot easier. So don’t be stubborn, leave that “I just need a pen and paper” attitude and start using it.

There are a lot of small business accounting mistakes besides these 8, of course. I hope this article will help you better understand them and avoid making them.

Do you have any thoughts or questions about small business accounting mistakes? Let me know in the comments below and don’t forget to sign up for our Purchase Order Plus software and make creating, approving and sending purchase orders much easier for you and your team.

10 small business accounting tips

10 Small Business Accounting Tips Every Business Owner Needs to Follow

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As a small business owner you often need to wear multiple hats. One of those hats might be that of the bookkeeper or accountant, or even both (because, the two are separate, remember when we talked about that?). Or you might be free from having to wear that hat by hiring a professional accountant to come over every months to look over your books.

Well, no matter how you are keeping your books and finances in order (and, trust me, you will want to do that, even be a little “obsessed” with it), these 10 small business accounting tips will make your life as a business owner a lot easier.

1. Always Follow up on Invoices

Because if you don’t, who will? Certainly not the customer you’ve sent that invoice to. If you leave it to them, they’ll probably “forget” all about it. Sending an invoice, doesn’t mean that you’ll actually receive payment for it. That’s why you need to follow up on your invoices.

If you are working with paper invoices that could pose a problem when following up. Fortunately, the solution is very easy. Start using an online or cloud-based accounting software which will help you automate this process.

2. Get Everyone to Use the Same Account Numbers

It’s all about consistency here. If you allow every department to use their own account numbers and code invoices as they please, you’ll sooner run out of stress medication than they will of account numbers.

By getting everyone to use the same account numbers you will rapidly increase the entire accounting process and reduce paperwork significantly.

3. Don’t Forget to Track EVERY Expense

Just because it might be “just a few bucks”, it doesn’t mean you can ignore an expense. Whether it’s $2 or $200 or $2000, you need to track, label and categorize every, and I mean EVERY expense you have. Because those things add up faster than you can say Jack Robinson.

But wait a second. Wouldn’t all those receipts be too much paperwork? Not if you use your business credit card, which will also let you earn cash back and rewards (when applicable) on your spend. Neat.

4. Make Use of Lockbox Processing

Lockbox processing can be a lifesaver if you are receiving large customer payments. What it essentially means is that, instead of getting payments to your business address, they instead go to a PO box from where your bank will process those payments for you and then deposit them into your business account.

Not having to manually process every payment will save you a lot of time.

5. Use Separate Coding for Ongoing Projects

If you have ongoing projects, you should think about setting up separate line items. Why? Because if you enter the project cost into your general ledger at a later date it will only lead to processing one invoice twice. You don’t want to do that.

Instead, by setting up separate coding for your ongoing projects, you get clean and easy-to-read reports.

6. Hire a Professional

Look, I understand. You’ve just started your SMB and you think you might be able to save some money by doing your own bookkeeping and accounting. Perhaps you even have a knack for it.

But here’s the thing. You are not a professional accountant or a bookkeeper and very soon your hubris is going to make you pay badly. To avoid this, hire a professional to keep an eye on your books and you in return, you can deal with other stuff. Which are probably going to be more interesting.

7. Use an Accounting Software

There are plenty of reasons why you should consider using an accounting software app like Xero for instance. This will allow you to automate your entire accounting process, plus you can use the full suite of their professional tools and features and that’s not something you can get with your in-house system.

8 Look Better Into Credit Screening

You’ll often be in a situation where you will have to accept credit from a customer. The question is, who should you accept credit from? Certainly not from a customer with bad credit.

You need to perform a credit check before accepting it from a customer. Otherwise, you are running into a risk of not getting paid. The least you can do is screen those customers with a software like Credit Karma and ask for a deposit.

9. Consider Labor Costs and How You Reimburse Employees

One of the biggest (if not the biggest) expenses you’ll have will be paying your employees. Of course, you want this to be fair, which is why you need to keep tabs on any perks, overtime work and benefits you want to offer them in order to avoid either underpaying them and overpaying them.

One big problem here is that, when asking for reimbursement for travel and other expenses they accrue, employees will often send you messy receipts, which may even contain a bunch of errors. Instead, get them to use an automated electronic entry system when scanning their receipts.

10. Don’t Forget to Separate Your Business and Personal Expenses

You know what they say, “separate your love life from your business life”. The same logic applies to your expenses. I hope I don’t have to tell you this, but your grocery expenses do not belong in your business general ledger. Keep these two separate with a high fence.

There you have it. 10 small business accounting tips you should follow as a business owner. If you find only one of these useful, I’ll consider my mission a success.

We’d like to hear from you in the comments below and don’t forget to sign up your email to try Purchase Order Plus for free and make creating, approving and sending purchase orders on any device easier and faster.