How to Solve Accounting Challenges for Small Businesses
Your small business may have several roles. These include marketing, hiring the right people, and maintaining good relationships with customers. You also need to track your business accounting and profits.
Although accounting may not be your passion, it is essential for small businesses to keep their books organized. Accounting is the language that enables financial growth. Tracking your numbers will reveal how profitable your business is.
Accounting is the process of recording, summarizing, and analyzing financial transactions for a business. Although this can be challenging, there are many other financial hurdles you need to overcome.
Here are 13 top accounting challenges entrepreneurs must face, and how to solve them.
1. Managing cash flow
Small businesses may face challenges managing cash flow. A U.S. Bank study found that 82% of the businesses that fail are due to cash flow issues. It is difficult for small business owners to allocate funds to pay recurring expenses and keep their business alive.
You can keep your cash flow in check by reviewing your bills and chasing payments from customers. Also, you should pay attention to your monthly expenses. You can cut costs whenever possible. To quickly generate cash, you might also consider selling any equipment that you don’t use.
2. Covering unexpected expenses
A retail store that earns $150,000 per annum after expenses may appear to be in great shape. It probably is until an unexpected expense occurs or an emergency arises.
Let’s take, for example, a worker falls and slips at work and your company doesn’t have enough insurance. Your business could be facing lawsuits and medical bills that cost more than $1 million.
Even small expenses, such as a one-time tax paid by the government on all businesses located in a specific area or an increase in the price of goods, can have a significant impact on your bottom line.
To manage your short-term expenses, optimize your credit. To ensure your liquidity, it’s important to monitor your long-term profitability.
3. Reporting finances
One of the greatest challenges for many businesses is complying with financial disclosures required to be filed by the U.S. Securities and Exchange Commission. It can be difficult to keep up with the reporting requirements. Make sure you have all the necessary documentation in order to avoid being audited.
Outsourcing some of your reporting work is the best way to make sure you are meeting all requirements. Find a bookkeeper or accountant that specializes in small business accounting to keep your books current.
4. Filing taxes
Taxes are a requirement for every U.S. company. However, taking advantage of tax deductions can significantly reduce your tax bill. If your small business is based at home, deductions from your home office are essential for running your profits.
Section179 of the tax code permits you to immediately deduct the cost for business property depreciation. This allows you to reinvest the investment cost into your company.
5. Upholding current laws
It is difficult to keep up with your taxes because the laws change constantly. Your small business can be affected by changes in tax code or policy. If you don’t plan, you might end up paying more taxes in the end.
It’s a smart idea to collaborate with a qualified CPA in order to manage your taxes. CPAs have a wealth of knowledge in tax law and can help you to use them to your advantage.
6. Regulating payroll
It can be challenging to play the role of a payroll or HR expert. You could face costly penalties if you do not correctly categorize your new employees. There are many other factors that go into managing payroll. These include making sure taxes are correctly filed, making sure employees get their pay in a timely manner, tracking employee time, and dealing with compliance issues.
7. Updating expenses
It can be difficult to keep track of receipts and recurring expenses, but it is essential that you stay on top of the market.
You don’t have to keep all receipts on paper in a filing cabinet for later processing. There are many accounting software choices that can help you become paperless. Each program is unique, so make sure to do your research and find the right one for your company.
8. Analyzing your finances
Even if you don’t use accounting software, reconciling your books can be a tedious task. It is easy to make mistakes that could lead to inaccurate data.
It is crucial to verify all business transactions on a monthly basis. It may be a good idea to regularly go through your accounting books at night, while you still have fresh transactions in your head.
Three steps are required to make sound financial decisions: interpreting, analyzing, and advising. No matter what reports you use to generate the numbers, it is just the beginning. What does that actually mean? What do they actually mean? And, more importantly, how can you improve them.
To get the best advice and decision, you must understand and analyze these numbers. This will help you improve your financial situation in your industry as well as identify the areas that could be hindering your business’ growth.
9. Securing your data
You increase your company’s online exposure and increase the risk of it being targeted by hackers. Companies of all sizes need to take cybersecurity seriously
You should first assess the vulnerability of your business. A cybersecurity professional can help you assess your business and find areas of weakness. You can then create a plan for addressing them.
10. DIY accounting
It can be costly to try to do it all yourself when it comes to accounting for your business. While you may be an expert in your business, that doesn’t necessarily mean you are an expert in bookkeeping.
It’s easy for you to make mistakes, even if your books are balanced. You could end up paying more taxes or having your invoices go unpaid accidentally.
A skilled accountant can ensure that your books are accurate and up-to-date. The second set of eyes will help reduce the chances of errors and identify areas where you can cut costs. You will save time and be able to spend your money on expanding your business.
11. Embracing accounting software
Excel spreadsheets are still a common way to manage your books. It’s a method you have used for many years. Why change?
The best cloud accounting software will streamline your business processes and help identify growth drivers. You will also be able to reduce the time required to record and reconcile transactions.
Cloud-based accounting software programs typically charge monthly fees and offer a variety of services, including sales tracking, budget planning, and inventory management. They also provide financial statements, payroll, tax management, and financial statements.
Accounting software can seem overwhelming due to its many functions and features. However, it is powerful and can provide valuable insights into your company. You can reduce the time required to produce reports by learning the software and training staff.
12. Working remotely
Many people were forced to work from home after the coronavirus pandemic. However, many are not ready to return to work full-time 18 months later. Many companies have had to deal with tax compliance issues due to remote work.
The Society for Human Resource Management reports that 28% of employees have worked in a country or state other than their home, and only 32% of them told their employers. This means that many businesses could have failed to pay payroll taxes and could find themselves in serious trouble if audited.
Consider adopting a new remote working policy to help your employees. You can track the work locations of your employees if necessary to ensure you are meeting all tax requirements.
13. Sweating the small stuff
Record and categorize each transaction to get a complete picture of your company’s finances. You should also conduct a monthly audit of your books and prepare regular reports.
A better bookkeeping system will make it easier to spot mistakes. Accurate accounting is the only way to get a complete picture of your company’s current status.