Accounting and bookkeeping are critical functions in any business. Small businesses face challenges in accounting and bookkeeping procedures. Accounting is the systemic and comprehensive recording of financial operations in a company. Business bookkeeping is the recording of financial transactions as a part of the accounting process.
Entrepreneurs and business owners often do not see that common small business accounting mistakes are a significant threat to their business’s long-term growth.
Not Using the Best Accounting Software
Choosing the correct software is among the biggest accounting challenges that small businesses can face. It is an important and challenging step in business to choose the proper software for your business needs. Consider its cost, usability, and extra features when choosing suitable bookkeeping software for your small business.
Features of an 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 cost of accounting software is an important issue to consider. First, plan out your business needs and finances. Purchasing costly software with highly advanced features will not help your small business if you do not need these expensive features. A small business owner can plan to purchase accounting software by making a full payment at once, or they can choose to make payments in installments or monthly payments. Plan to purchase the software that suits your business finances the best.
Financials are Incorrect
Incorrect financials can threaten your business’s accounting and may sink your funding round.
Any error in your financial statements leads to big losses. If you do not keep your financial data current, your bookkeeping and other business operations will be in a mess. Your accounting statements must be clear and transparent. Income and expense statements must be precise and related to the cash flow and balance sheet. Delayed data entry is a big risk of fraud and theft.
Financials are not Produced Monthly
It is often thought that producing financials on a quarterly or bi-annual basis is okay for a small business. However, monthly financials show investors that you are closely monitoring your business.
If expenses are made but no income statement is updated, it can lead to a negative balance. Invoices paid by the company may go unnoticed and damage a company’s reputation. It can also end terms with suppliers, halting or significantly reducing business growth.
Business Owners mix Personal Finances with their Business Accounts
If you mix your personal and business finances, you cannot correctly estimate the profit generated by your invested capital. For example, if a business credit card is utilized for personal expenses during a trip or dinner, this amount could be later paid from the company’s income.
Covering Small Expenses out of Pocket without Recording
Paying business expenses out of your pocket will eventually make your company look stronger in income than it is. Recording everything is essential so you have an accurate picture of your company’s financial standing.
Starting New Projects and Ideas without a Clear Budget
If you start a new project in your business without planning for it, you can easily run short of your budget for other business operations. You may have to quit the project in the middle if you don’t get the loan or find other investors. It’s essential to always plan before making big moves.
Not Using Accounting Software or Cloud Technology
Failure to set up the correct software your company needs leads to poor decision-making. Installing the wrong software (more complicated than required or lacking crucial functions) can lead to more complexity in accounting. Accounting software prevents accounting and bookkeeping errors. Many software programs come with guided help boxes to make an accounting process easier to interpret. Inventory control tools are provided in the software. Tax matters are made easier using accounting software.
Poor Interpretation of Accounting Information
Accounting information software is only a tool. Decisions must be made after completely checking the reports and interpreting the data. Data interpretation is made by comparing financial statements with cash flow statements and balance sheets. This interpretation can be complex and hard to understand, so hiring a bookkeeping service may be ideal.
After getting the complete picture of accounting information, entrepreneurs and business owners must focus on the long-term consequences of decisions. Making short-term decisions after interpreting account data does not benefit the business long term.
Conclusion
Small businesses face the biggest accounting challenges. Either they are running short on resources to keep an up-to-date accounting and bookkeeping picture, or they are not using the correct accounting software. From choosing the proper accounting software to managing accounting tasks correctly and keeping them up to date, these are among the biggest accounting challenges that small businesses face.
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