As a small business owner, you need to wear many hats. Your tasks range from hiring the right employees to marketing your business to retaining your customers. You'll also need to keep track of your profits and business accounting. Maybe accounting is not your passion, but keeping your books organized is critical for your small business. It speaks volumes about your business profitability!
For starters, accounting involves the process of recording, summarizing, analyzing and recording of financial transactions of a business. This can be a challenge in itself, and there are additional common financial obstacles standing in the way of small business owners. Here is a list of a few of the top accounting challenges entrepreneurs must deal with, and how to overcome them.
1. Cash flow
Managing cash flow is a surmounting problem for small business and startups. According to a U.S. Bank study, a whopping 82 percent of businesses that fail, do so because of cash flow problems. Small business owners are finding it difficult to earmark funds to cover recurring costs and keep the business afloat. To keep cash flow in check, scrutinize your bills carefully and be sure to chase payment from customers.
2. Unforeseen expenses
If a jeweler, after expenses, earns $150,000 per year it may seem to be in a good shape – until a slip-and-fall lawsuit against the store costs them $1.3 million and there is no insurance coverage. Even smaller expenses, such as one-time government tax on all businesses in a particular region, or rise in the cost of goods, can cause major changes to the bottom line. Leverage and optimize your existing credit to manage your small-term expenses, but also keep an eye on your long-term profitability to ensure that cost changes do not threaten your overall liquidity.
3. Managing payroll
Acting in the role of an HR or payroll expert can be tricky for a small business owner. If you lack knowledge of HMRC’s RTI (Real-time information), you don’t know what tax code to add to new employees. How will you pay your employees in the long run? All these problems and many more can come your way.
According to a recent survey, more than half of the businesses polled stated that there is room for improvement in their payroll process. The most common problems were related to organizational inconsistency, including incorrect tax filing, overdue payments, tracking employee absence, compliance issues and administrative burdens.
4. Keeping on top of expenses
Keeping track of receipts and recurring expenses can be bothersome. Yet, maintaining expense records is extremely important for small businesses to process and stay ahead in the market.
Thankfully, you no longer have to store all paper receipts in a file or box so they can be processed later. There are many accounting software options available on the market that can help you go paperless. Every software is different, however, so be sure to thoroughly research and find the one that best suits your business needs.
5. Reconciling your books
Closing the books can be an arduous task, especially without a properly established accounting system. It's easy to make a mistake in your books, which can lead to incorrect calculations, misleading data and even IRS audits. It's crucial to verify all of your business transactions on a monthly basis, if not weekly or daily. You may want to make a habit of running through your accounting books at the end of each day while the transactions are still fresh in your mind.
6. Analyzing your finances
Making a sound financial decision is best done in three steps: Interpreting, Analyzing and Advising. Regardless of what reports you use, generating the numbers is only the first stage. What do those numbers actually mean? More importantly, how do you improve them? It is necessary to interpret and analyze these numbers to lead yourself to the best advice and decisions. By doing this, you can enhance your financial position in the market and find the loopholes, and positively affect your business growth.
Avoiding Accounting Mistakes
An incredibly important task for small businesses is selecting the right accountant. An experienced accountant or CPA can help your business avoid all the above accounting mistakes. A good accountant will be able to advise you on all the above issues, and much much more, helping you grow your business in this agile market.
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