Most Common Bookkeeping Issues Affecting Small Businesses
No business, from one-person businesses to Fortune 500 corporations, can avoid the arduous duty of bookkeeping. While it's not one of the more attractive aspects of the job, accounting is at the heart of small company success, where mistakes can be disastrous.
To prevent the financial troubles of poor bookkeeping, you must first be aware of the pitfalls you need to avoid.
Bookkeeping can be challenging; nevertheless, if done effectively, it can contribute significantly to the overall health of your small business.
There are several common bookkeeping challenges that small businesses have to deal with:
1. Inefficient Receivable Accounts and Collections
Bookkeepers are in charge of regular invoice generation and issuance, preferably at the time of supply. Inaccurate and inefficient record keeping can lead to problems with your cash flow.
To mitigate this, you'll need a procedure for regularly following up on outstanding debts. Too many businesses fail to do this and find themselves in financial difficulty. Even better, automate email reminders, and you'll discover that most clients pay quickly, leaving you to engage just those who don't. In this manner, you can efficiently pay your expenses, meet your business's financial obligations, and help it grow substantially.
2. Poor Cash Flow Management
Poor cash flow management is a persistent problem for many small businesses, which can wreak havoc on the company's operations. A bookkeeper can provide cash flow estimates and efficiently manage debts. They go to considerable efforts to organize activities that may be used to produce income.
They make sure that the emphasis is on personnel who help improve cash flow and replace non-productive tasks with productive ones. They can help create more liquid assets by selling superfluous ones to sustain positive cash flow. When necessary, the bookkeepers can write reports that can be presented to the board of directors.
3. Expenditure Control
Controlling expenditures is crucial for every kind of business. You need to maximize profits, and to do that, you need to ensure your expenses are in order. If the management cannot control the expenditures, it may become an urgent issue.
A bookkeeper can save the situation by scrutinizing each transaction and reducing underperforming operations. They may evaluate the resources and look for excess and take corrective action.
4. Personal and Business Expenses
To kickstart their business, many small business owners, especially those just starting, use personal assets to pay for business expenditures. Similarly, they occasionally use business funds to pay for personal items.
Don't mix personal and corporate funds even if you own the company and the money is technically yours.
For starters, it complicates your bookkeeping since every transaction must be sorted out and confirmed before it can be entered. Second, it's easier to lose track of your actual business expenses, resulting in missed tax benefits.
Use a separate company bank account and credit cards to prevent these complications. If you need personal cash, make a business payment to yourself and transfer the funds to your account.
5. Unbalanced Books
Small businesses often report quarterly or biannually. You track your company's revenues and expenses through monthly financial statements.
Imagine you don't file monthly financials. Careless spending and neglect to update your income statement may result in a negative account balance. Payable bills may be overlooked, resulting in a loss of reputation, and your vendor ties may be terminated. This results in delayed or interrupted growth for you and your business.
If you don't reconcile your accounts regularly, you're falling behind. Always check your transactions and balances.
Overdraft fees, returned checks, and other unpleasant situations should be avoided. Remember that the longer you delay, the harder it will be. Start working on the reconciliation as soon as you get your bank statement to identify any differences early.
While the majority of small company owners despise bookkeeping, they are compelled to do so. Professional bookkeepers have the skills and knowledge to discover minor errors that might otherwise go unreported. They will be informed of any tax changes that may affect your daily financial practices. Having a second set of eyes to check your financial records may save you time and money.
If you have a small business and need end-to-end accounting and bookkeeping services in the Gold Coast, our business accountants here at New Wave Accounting and Business Advisory are ready to serve you. Reach out to us today!