Rapid growth seems like the perfect business dilemma. Sales increase. New customers arrive. Staff are recruited and bigger contracts begin to emerge. However, an increase in revenue does not necessarily equate to increased finances. A thriving Utah business can soon realize that with increased sales come increased tax and payroll liabilities. Even with a healthy income statement cash can get very thin. According to the U.S. Small Business Administration, cash flow doesn’t always correspond with the timing of business costs. That can lead to significant cash shortages for apparently profitable businesses.
Revenue differs from cash available
A weird thing about growing fast is that revenue is not spendable cash. You can send an invoice to customers today and receive payment weeks later. While suppliers and wages must be paid on time, growth also may necessitate supplementing inventories and equipment. These charges can eat up cash before you receive customer payments. Therefore, businesses should, at the very least track their cash flow versus their revenue and profit. Cash forecast is a tool that can show you that you have a cash crisis on the horizon. Good financial records also provide a clear picture for owners on where the money is being spent and from where it’s being generated.
Taxes can all of a sudden get a little trickier
As the company grows quickly, they might also find themselves liable for tax responsibilities that were more manageable while the company was still smaller. A Utah business may be required to be registered for sales tax and have proper filing procedures if a taxable activity has occurred which require such a registration. A registered business is required to file sales and use tax returns for all required periods, the Utah State Tax Commission says. This can be true even if no tax was collected in a specific time period.
Limited Records Can Make Growth Confusing
A second financial pitfall is when the accounting systems are not expanded along with the business. If your company previously used spreadsheets to keep track of transactions, then growing invoices and expenses might be a problem for you. If you don’t have receipts, deductions may be more difficult to substantiate. Unreconciled accounts may conceal cash shortages or double-payments. The IRS advises keeping records that can be easily used to demonstrate the income and expenses of the business. Supporting documents should also be kept to support transactions and tax reporting. More and more as companies grow, they might be able to use a professional financial oversight as a way to avoid more costly bookkeeping problems.
Smart Growth Depends on Financial Visibility
It’s not revenue that’s the real problem with rapid growth. This loss in visibility is happening as revenue speeds up. It’s important for business owners to check in on their cash flow and outstanding invoices frequently. They should also keep track of the payroll obligations and tax deadlines. As companies look for accountants in utah, they can benefit from professional accounting support to enhance financial reporting and planning. Record what already happened isn’t the aim. Improved financial management will enable owners to see what is going on today and what might be going on tomorrow. A growing financial system with the company can make increased revenues a source of sustainable growth rather than an unforeseen financial burden.
