Accounting and bookkeeping are the key 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/owners often do not realize that common small business accounting problems are a major threat to the growth of their business in the long run.
5 Common Small Business Accounting Problems Killing Small Businesses
YOU DO NOT USE AN ACCOUNTING SOFTWARE
Manual work is always the hardest and is at major risk of errors. A small accounting error can lead to big losses in the business. An accounting software according to your business size is as important as funding your business. Small business owners can also get a specific software to meet their needs depending on company specifics.
Working on a spreadsheet is not as productive as working on an accounting software.
An important and challenging step in business is to choose the proper software per your business needs. Consider its cost, usability and extra features for choosing a suitable 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
- Taxation matters
FINANCIALS ARE NOT PRODUCED MONTHLY
In a small business, it is often thought appropriate to produce financials on a quarterly or bi-annually basis. However, monthly financials show investors 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 and it can lead 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 on a monthly basis is a common problem that small businesses encounter.
FINANCIALS ARE INCORRECT
Incorrect financials is a threatening small business accounting problem in your business. If your financials are incorrect, it may sink your funding round in your business.
Any error in financial statements leads to big losses. Business bookkeeping and other business operations will be a disaster if you do not keep your financial data up to date. 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 frauds.
BUSINESS OWNERS MIX THIER PERSONAL FINANCES WITH BUSINESS ACCOUNTSBusiness owners often mix their personal 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 that was generated out of 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 inventory of the company, purchases are also made for personal or private use.
Covering small business expense out of pocket without recording it happens often as it can be easier. However, if it is not on the bookkeeping record, the income of your company could appear larger than it actually is.
Small business owners must organize their payroll section or their company could go into debt with increasing interest. You can enlist the help of payroll companies to avoid errors.
Small business accounting problems start with infrequent bookkeeping and accounting functions. This will not give a true picture of the business and leads to the inability to make wise decisions for the company. Failure to use an accounting software may lead to manual errors that are unintentional. When running into accounting problems, small business owners may have to get loans to pay for timely expenses such as paying for the salaries of their employees. If small business owners focus on these small business accounting problems, their businesses can be stable and experience exponential growth.
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