Small business managers face a lot of problems daily, and efficient accounting processes and bookkeeping tops the list. As a business manager, it is difficult to handle every department of your business. Most times, business managers focus mainly on marketing, sales, and customer relationships and neglect the company’s finances. However, without accurate accounting records, the rest of your business will suffer.
Bookkeeping is all about analyzing and recording your business’s finances. The slightest of mistakes could lead to unnecessary losses or missed income. As the proprietor of a small business, it is critical to dedicate some time daily or weekly to go through your financial records.
In this article, we’ll be going through some common bookkeeping problems small businesses face.
1. Cash Flow
Business Insider reported that as much as 82% of small businesses fold because of cash flow issues. To properly handle cash flow, you have to focus on your accounts payables and accounts receivables. Many business owners just look to analyze their checking accounts and see a figure they believe is suitable. However, you also have to:
- Keep extra money in reserve
- Collect deposits
- Extend payables
- Consistently track cash flow
- Audit your business’s inventory
These elements can be found in your bookkeeping records.
2. Ignoring Tax Concessions
When it comes to processing accounting records, one major concern for non-profit organizations is ignoring regulatory limits and tax responsibilities, which will eventually lead to losses. This could become a serious problem for business owners. You must keep an eye out for revisions or changes that may impact the tax regulations of a state. You could also use these tax concessions to your advantage. Some taxes cannot be affected by concessions. These taxes include the goods and services tax, income tax, capital gains tax, and many others.
3. Merging Expenses
Certain small business proprietors use their personal finances to take care of certain business expenses, especially when they are trying to get their companies to the top as soon as possible. Afterward, they then use the company’s funds to handle personal needs. This will eventually create a problem because you are now unable to separate your personal finances from the company’s. While the money is technically yours to use, it still isn’t a smart idea to merge both finances. This will make it much harder to keep accurate records.
4. Poor Payroll Management
Most small business managers incur IRS penalties because of payroll mistakes. Small businesses do not have the privilege of having a department dedicated to payroll only. You might also not have an HR department. You might be forced to handle payroll all by yourself. However, you could always opt for hiring professional bookkeepers to manage payroll. GeekBooks is a bookkeeping company that could optimize your payroll process. You could also use bookkeeping software with built-in payroll management.
5. Failure to Reconcile
Many small businesses believe it is appropriate to compile financial records on a quarterly or bi-annual basis. However, this isn’t always suitable. Compiling financial reports on a monthly basis is beneficial in showing investors that you meticulously keep track of your business’s expenses and revenues. You are more likely to get investors if you do this. You will also be able to notice any irregularities way before it becomes an even bigger problem.
6. Delayed Receivables
Another major bookkeeping challenge faced by small businesses daily is dealing with their receivables. You could be working and not receiving payment for a while, depending on the business you own. Customers that delay payment or don’t even pay altogether can damage any business. This challenge can be dealt with by consistently monitoring your receivables. To do this, you have to develop efficient invoicing habits. You could even leverage software for follow-ups and automated billing.
7. Delayed Payables
Similar to how you ensure to collect what clients owe you, you also have to ensure that you are paying off what you are indebted to others. Delayed payables could become a major problem for any business owner. For beginners, you do not want to have a reputation for avoiding or delaying payments. Delayed payables could also lead to more serious issues, such as incurring late penalties or having your deliveries withheld.
Small business proprietors usually trust their employees a lot. However, unfortunately, most employees take advantage of this trust. According to the Business Fraud Prevention Organization, small businesses suffer from more fraud compared to larger organizations. Some common fraud schemes include:
- Cash larceny
- Payroll schemes
- Check to tamper
- Inventory theft
To avoid fraud within your company, you have to develop more transparency and consistency in the accounting department. Place someone in charge of the book and always perform internal audits.
The best way to deal with the challenges that come with bookkeeping is by hiring a professional accountant. As a business manager, you can’t handle the whole accounting department yourself. You need to delegate responsibilities accordingly. By knowing these common challenges, you can work rather efficiently to avoid them and grow your business.