Small business owners face a number of challenges every day, and accounting is a big one. Here’s how to stay on top of your finances as an entrepreneur.
As a small business owner,you need to wear several hats. Your tasks will range from marketing your brand to hiring the right people to maintaining relationships with your customers. You’ll also need to keep track of your profits and business accounting.
Accounting is probably not your passion, but keeping your books organized is crucial for your small business. Accounting is the language of business that speaks about financial growth. It translates numbers into a comprehensible statement about business profitability.
Typically, accounting involves the process of recording, summarizing, analyzing and recording of financial transactions of a business. This can be difficult in itself, but there are other common financial obstacles small business owners must overcome. Here are some of the top accounting challenges entrepreneurs must deal with, and how to overcome them.
1. Cash flow
Managing cash flow is a big problem for small business and startups. According to a Bank study, a whopping 82 percent of businesses that fail, do so because of cash flow problems. Small business owners find it difficult to earmark funds to cover recurring costs and keep the business alive. To stay on top of cash flow, analyze your bills carefully and be thorough when chasing payments from customers.
2. Unforeseen expenses
If a retail store, after expenses, earns N150,000 per year it may seem to be in a good shape – until a slip-and-fall lawsuit against the retail store costs them N1.3 million and there is no insurance coverage. Even smaller expenses, such as one-time government tax on all businesses in a particular region, or rise in the cost of goods, can cause major changes to the bottom line. Optimize your existing credit to manage your small-term expenses, but also monitor your long-term profitability to ensure that cost changes do not threaten your overall liquidity.
3. Disaster preparedness
Unpredictable natural disasters have devastating effects on lives and businesses, but they hit small firms especially hard. You might have planned some disaster recovery strategies, but you need to have cash on hand to ensure that you will be able to revive yourself after a catastrophic event.
Every business has to contend with paying taxes, but taking advantage of deductions means you can reduce your bill come Tax Day. If your small business is home-based, home office deductions are important for running your profits. The National Federation of Independent Business states that “ When you invest in your business.
5. Managing payroll
Playing the role of an HR or payroll expert can be difficult for a small business owner. If you don’t have the knowledge, you don’t know what tax code to add to new employees. How will you pay your employees in a long run? All these problems and many more can come your way.
According to a recent survey, more than half of the businesses polled stated that there is room for improvement in their payroll process. The most common problems were related to organizational inconsistency, including incorrect tax filing, over- and underdue payments, incompatible software, tracking employee absence, compliance issues and administrative burden.
6. Keeping on top of expenses
Keeping track of your receipts and recurring expenses can be exceptionally hard. Yet, maintaining records of expenses are very important for small businesses to process and stay ahead in the market.
Fortunately, you no longer have to stock all paper receipts in a file or box so they can be processed later. There are many accounting software options available on the market that can help you go paperless. Every software is different, though, so your research and find the one that best suits your business’s needs.
7. Reconciling your books
Closing your books can be an annoying task, especially without an establishing a proper accounting system. It’s easy to make a mistake in your books, which can lead to incorrect calculations, misleading data analyses and even IRS audits. It’s critical to verify all your business transactions on a monthly basis, if not weekly or daily. You may want to make it a habit to run through your accounting books at the end of each day while the transactions are still fresh in your mind.
8. Analyzing your finances
Making a sound financial decision is best done in three steps: Interpreting, Analyzing and Advising. Regardless of the reports you use, generating the numbers is only the first stage. What do those numbers actually mean? More importantly, how do you improve them? You must interpret and analyze these numbers to lead yourself to the best advice and decisions. By doing this, you can enhance your financial position in the market and find the loopholes, which are affecting your business growth.
Avoiding Accounting Mistakes
An incredibly important task for small businesses is selecting the right accountant. An experienced accountant or CPA can help your business avoid all the above accounting mistakes. As a good accountant will able to advise you on all the above issues, and many more, to grow your business in this agile market.
Hiring an in-house accountant can be costly, but it’s important to get a qualified professional on board at an early stage. If you are a small business owner or startup facing these or other accounting challenges, outsourcing your finance and accounting needs can be a viable, affordable way to deal with those issues faster, and get back back to focusing on what you do best.