Small business owners face new challenges daily. Efficient bookkeeping and accounting processes are at the top of the list. Many times business owners spend more time focusing on sales, marketing, and managing customer relationships than they do on their company’s finances. However, accounting and bookkeeping are the key functions in any business. Oftentimes, what appears as common small business accounting mistakes become a major threat to the growth of the business in the long run. So here are some challenges that one faces while bookkeeping and how you can deal with them:
Major Challenges faced by small businesses:
- Cash Flow Management: A good cash flow is one of the most important aspects of building a healthy business. According to Business Insider, 82% of small businesses fail because they experience cash flow problems. There is no denial that it's important hence plans for cash flow management should never be an afterthought. Efficient management of cash should be the key focus for startups and small businesses because starting off on the wrong foot can be difficult to recover from. According to a recent study by Intuit QuickBooks, 69% of small business owners are kept up at night with concerns about cash flow.
- Financial Reporting: Without an effective bookkeeping process, closing your books can be an extremely daunting task. Most of the small businesses generally have a small finance team and hence the financial reports are generally submitted to the management on a quarterly/bi-annual basis. This might lead to control accounts/suspense accounts with accumulated balances for a longer time, unpaid bills overdue for a longer time, statutory dues not paid within due dates, unmatched inter-company balances, etc.
- Management of payroll: Salary payment, attendance monitoring, income tax filing, and managing invoices can be a challenging task for small firms. Handling all of this by a small finance team can be overwhelming and in case you happen to make mistakes, there are chances of getting penalized by the government authorities.The most common problems that clients have related to payroll are; tracking employee absence, over- or underpaying, compliance, tax filing and using incompatible software.
- Tax Preparation and filing: Your business needs to pay taxes. However, so many business owners out there have problems meeting their tax demands. Your taxes, like nearly every aspect of your finances, stem from the company’s bookkeeping process. Some of you might even be overpaying on your taxes because of bookkeeping errors, which is why finding someone to properly manage your books needs to be a priority.
Solutions to major challenges:
- Create a cash flow budget: A cash flow budget or forecast is an estimate of the total cash inflows and outflows in the business during a specific period of time. Creating a cash flow budget will help in forecasting the periods with a cash surplus and cash deficit and accordingly help businesses to make important decisions such as planning for capital expenditure or cut expenses.
- Managing receivables: Small business, more often than not, concentrate on increasing the turnover but fail to put in a strong receivables process in place to ensure that the sales achieved are converted to cash. Incorporating a receivables process in place, and only extending credit to customers who have a history of making prompt payments can position a company well to avoid cash flow problems.
- Managing Payments/cut expenses: When small businesses find themselves constantly coming up short when it comes to cash, it might be time to take a hard look at the expenses. Expenses can balloon out of control when not paid attention to. Businesses need to analyse the fixed expenses incurred periodically and try reducing the expenses that would not have an impact on the business. Also, most business owners do not have a system in place for tracking and paying bills. Establishing effective controls around payables, including tracking the bills by due date and follow up on unpaid bills would be an effective solution in managing payables.
- Monthly Financial Reporting process: Incorporating monthly financial reporting process in place and closing the books on a monthly basis helps in meticulously keeping track of the business earnings and profitability, timely remittance of statutory dues and thereby avoid penalty/interest on late payments.
Save Time by Switching to Online Accounting Services
Hiring the right talent to look after the accounts and bookkeeping is crucial. A firm needs to hire someone who has the right knowledge and experience. If firms cannot find good bookkeepers, they can always take services from an online bookkeeping service company like us.
When you outsource bookkeeping tasks to us, you can plan, focus, and strategize about growth and other business plans.
Tickmarks is your trusted partner to bookkeep your financial transactions. Call now to know what we can do for you.