Starting your business venture requires that you take up almost all roles in your business, at least for the first few months or years.
This is perfectly normal as you would naturally be doing all you can to minimize your overhead expenditures in ensuring your bottom line- Profit stays positive.
But sooner or later, reality sets in, your business is growing and at this point, you will find it a tad more difficult to effectively perform the roles you found easy doing when your business just started.
This is where shoebox accounting starts to find its way into your business because you will be more involved with strategic roles to keep your business afloat.
In most cases, your bookkeeping and accounting begin to suffer. A study revealed that in a class of 30 students, it is rare to find one person that has any form of financial literacy training.
So you find yourself throwing your financial information in a shoebox. Once, you fill one shoebox with tons of accounting documents, you find another shoebox and the cycle goes on and on.
Before we dive right into the features and problems associated with shoebox accounting. It is only fair for you to know what shoebox accounting is all about.
Shoebox Accounting explained…
Shoebox accounting is the practice of filling shoebox (Yeah, boxes of shoe) with receipts, invoices, and other accounting documents and that at the end of the accounting year this passed on to the accountant to sort out.
Now that you have a basic idea of what this form of accounting entails, let’s explore its benefits…
Benefits Of Shoebox Accounting
Although many do not agree that shoebox accounting has some benefits but if pursued objectively, a few benefits can be associated with its use.
The major benefit it affords business owners is saving the stress of keeping accounting records while giving the freedom to focus on other important things like growing the business.
No special skill is needed, You are only expected to keep records safe so your accountants can calculate your yearly profit and tax returns.
Problems Of Shoebox Accounting
Before we plunge into the problems of shoebox accounting, it is fair for you to know some of the excuses people use as reasons for its use:
- I don’t understand finance and accounting
- Don’t know where to find a bookkeeper
- We run our business based on gut feelings
- I don’t understand financial statements and lots more…
And as much as shoebox accounting saves time and gives business owners the freedom to pursue other things, there are prices, heavy prices in the form of problems for them to pay to enjoy these infinitesimal benefits.
Business Data Insecurity: for all it’s worth, the shoebox accounting system is not secure. It is neither fireproof nor waterproof and is highly exposed to the risk of theft. An even funnier yet risky possibility is your office cleaner mistaking your shoebox as trash.
Accounting data is valuable information needed in determining the success or failure of your business. Bet you don’t want to leave its security to a game of chance
Debtors’ Neglect: every successful business knows how important it is that your account receivables make up their debts between a 90 days cycle.
Oftentimes this is not the case with shoebox accounting as you tend to lose track of your debts and even fail to collect them at times.
Expense Creep: another major problem with shoebox accounting is you tend to lose track of payments you have made, and in some cases you find yourself making cash payments to your supplier, only to make another payment for the same supplies when its invoice arrives.
Cashflow Problems: when a business has a lot of cash held up in the hands of receivables or makes a double payment for the same item of expenditure, then the cash flow problem automatically arises.
Usually, this is identified at the end of the year when your accountant is preparing your final accounts which makes correction more difficult.
Audit Risk: Shoebox accounting is further associated with disorderliness, as your invoices, receipts, payment vouchers, and other source documents are all packed in the same shoebox.
This results in difficulty while tracing business transactions and may place your business in a tight spot during the yearly audits.
If you can identify with any of the above. Then it is time to empty your shoebox and upgrade to something efficient.
What is the way out?
Dealing with your finances is one major problem for businesses and if you can identify with any of the aforementioned problems.
Maybe it is time to drop your shoebox accounting and upgrade to a more efficient accounting system– accounting software.
There are different account software and it is up to you to decide which to choose based on your budget and your scale of operations. Nevertheless, I will be highlighting some of the benefits of accounting software for your sake.
- Accounting software can be tailored to suit the needs of your business
- It is automated, it can do the heavy lifting for you
- This software is capable of producing business reports in real-time from anywhere in the world
- Accounting software is capable of forecasting
- Your transactions are backed up in the cloud, so you are assured of the total safety of your accounting information.
Accounting software is a very efficient tool for businesses. If you want to get the most out of it, you might consider getting an in-house accountant so you can focus on further expanding the horizons of your business.
I hope you find this article useful. If you have any questions drop it in the comment section. And don’t forget to hit the share button for your friends!