Accounting and bookkeeping are critical functions in any business. Accounting is the systemic and comprehensive recording of financial operations in a business. Business bookkeeping is the recording of financial transactions as a part of the accounting process.
Entrepreneurs and owners often do not realize that common small business accounting problems constitute a significant threat to the growth of their business in the long run. Here are five common small business accounting problems killing small businesses.
The Vital Role of Accounting Software
Manual work is always the hardest and is at significant risk of errors. A small accounting error can lead to considerable losses in the business. Accounting software according to your business size is as important as funding your business. Depending on company specifics, small business owners can also get specific software to meet their needs.
Working on a spreadsheet is less productive than working on accounting software.
An important and challenging step in business is to choose the proper software for your business needs. Consider its cost, usability, and extra features when choosing suitable software for your small business.
Features of accounting software must include:
- Inventory management
- Sales tracking
- Contacts management and contact history tracking
- Account to accept credit card payments
- Generating Invoices
- Financial statements, cash flow statements, and balance sheet
- Budget planning
- Payrolls
- Taxation matters
The Importance of Monthly Financial Statements
In a small business, producing financials quarterly or bi-annually is often thought appropriate. However, monthly financials show investors that you are closely monitoring your business.
It can lead to a negative balance if expenses are incurred, but the income statement is not updated. Invoices that need to be paid may go unnoticed, leading to a bad reputation for the company. It can end terms with the suppliers. Business growth could even be halted or significantly reduced.
Not producing financial statements every month is a common problem that small businesses encounter.
The Perils of Incorrect Financials
Incorrect financials is a threatening small business accounting problem in your business. If your financials are wrong, it may sink your funding round in your business.
Any error in financial statements leads to significant losses. Business bookkeeping and other business operations will be disastrous if you do not keep your financial data current. Your accounting statements must be clear and transparent. Income and expense statements must be clear and related to cash flow and balance sheets. Also, delayed data entry can be a big risk for fraud.
Separating Personal and Business Finances
Business owners often mix their finances with business expenses. Keeping these two finances separate is of utmost importance. If these two finances (personal and business) are not segregated, then what was intended for business vs personal matters will be intertwined, leading to problems. The profit generated from invested capital cannot be estimated correctly.
Often, a business credit card is utilized for personal expenses. Later on, this amount will be paid from the company’s income.
During purchase orders for company inventory, purchases are also made for personal or private use.
Covering small business expenses out of pocket without recording it happens as it can be more accessible. However, if it is off the bookkeeping record, your company’s income could appear larger than it is.
Navigating Payroll Issues
Small business owners must organize their payroll section, or their company could become debt with increasing interest. You can enlist the help of payroll companies to avoid errors. Payroll issues can have significant consequences for small businesses. Managing payroll accurately and efficiently ensures employee satisfaction, legal compliance, financial stability, and overall business success. Small business owners often opt for professional assistance to avoid errors and streamline their payroll processes, which ultimately contributes to their business’s overall health and growth.
Conclusion
Small business accounting problems start with infrequent bookkeeping and accounting functions. It will not give an accurate picture of the business and leads to the inability to make wise decisions for the company. Failure to use accounting software may lead to unintentional manual errors. When running into accounting problems, small business owners may have to get loans to pay for timely expenses, such as paying for their employees‘ salaries. If small business owners focus on these accounting problems, their businesses can be stable and experience exponential growth.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.