Common Small Business Accounting Challenges
Some accounting errors are small, unimportant, and easy to fix. For example, debits and credits aren't the top priorities when you're just starting your own small business. Other errors though, are more serious and may have a big impact on the profitability of your company.
Over time, poor accounting procedures can skew the truth about the financial health of your business. Repeated accounting errors and poor accounting procedures, in extreme situations, might push your company into insolvency or company administration.
A survey of small business accounting shows that only 42% of small businesses have a controller or CFO. This number drops to 25% in companies with only 11 to 25 employees. To elaborate on this staffing issue even further, just 40% of small business owners believe they are extremely or very educated in accounting and finance.
In 2018, a survey conducted by Clutch reported that business owners cite unplanned expenses (35%), undivided personal and business expenses (23%), late payments (21%), out-of-date financial records (11%), and clerical errors (11%) as their top accounting and financial challenges.
To ensure that you are taking all the necessary steps to increase your profitability and maintain fiscal responsibility, here is a list of accounting challenges encountered by small businesses:
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Cash flow
The most common challenge in small business accounting is to maintain liquidity while also making investments in the company as it is growing. Cash flow is an indicator of how much liquid cash is accessible to a business. Keeping track of accounts receivables and balancing due payments are essential components of effective cash flow management. Most new business owners struggle to keep their businesses afloat if they don't have this foresight and consideration for how their companies will develop and thrive. Analyze your bills thoroughly and customer payments carefully to stay on top of your cash flow.
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Unforeseen expenses
Many small businesses often operate on a meager budget than larger enterprises, which makes them more vulnerable to unforeseen expenses. Your company might not have enough cash on hand to deal with unforeseen costs. Small businesses should also have a backup strategy in place to pay for any costs you cannot afford, such as having access to a credit line. Save money for emergencies to minimize issues caused by unplanned expenses. Other less significant costs, such as a rise in tax rates or the price of goods and services, can have a huge impact on your bottom line. Keep an eye on your long term profitability to make sure that fluctuations in cost do not endanger your liquidity.
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Taxes
It is no secret that taxes are required for every business. Small business owners need to take the time to learn exactly how to handle business taxes in order to deal with the IRS. Overpaying might hurt the profitability of your company because you may have missed out on tax deductions or overestimated your tax liability. The IRS may impose severe fines and penalties for improper tax management, which can swiftly bankrupt any company. It is crucial to ensure that you are not paying more or less than you should be. Unfortunately, because tax law is too complex, many small businesses experience difficulties.
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Payroll
Payroll includes not only depositing salaries into employees' bank accounts; it also includes timekeeping, tax filing, superannuation requirements, and more. It goes without saying that this part of company and accounting operations is rather complicated, yet a lot of small businesses still manually perform payroll activities. You are responsible for appropriately determining wages and withholding for each pay period based on the number of hours worked. Additionally, you must see to it that payments are made on schedule to your staff, the state government, and the federal government. Make sure this process is in capable hands because payroll errors may be very expensive for your business. If you have been doing your own accounting up until now, consider whether or not payroll is something you truly want to take on or continue doing.
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Right Skills and Resources
It can be tempting to cut costs by taking care of your own accounting when you manage a very small business with limited revenue. At the same time, it may become quite challenging for you to manage your business operations and ensure accurate accounting. While doing your own accounting might seem like a good way to save money, you could end up costing your company money. Nearly all small business accounting issues can be resolved by hiring the right people. It may prove to be a worthwhile time and financial investment for your small business to use outsourcing services for finance and accounting. Like any other outsourced service, accounting is tailored to your company's unique requirements. Services that you do not require won't be charged for. Instead, you will have the choice to pick from a selection of expert services.
PeachBPO offers customized solutions for small and mid-sized businesses in Atlanta, GA and across the United States. For more information on how we can assist your business, visit us at www.peachbpo.com.
