If you’re a small business owner, you want your organization to do far more than survive: you want it to thrive! Unfortunately, to make sure that customers are happy and the lights stay on there are a lot of details that need attention, and some end up being overlooked. The intricacies of accounting are neither sexy nor fun, and most business owners don’t have the training or background that’s needed for this vital area of operations. To help make sure that you’re doing everything you can to maximize your profitability and fiscal responsibility, here’s a list of the six most common accounting problems small businesses encounter. By addressing each, you’ll go a long way toward assuring your business’ success and growth.
1. Not Using Accounting Software
There are a lot of benefits to using accounting software, and the most obvious of these is that if you try to do all of the necessary calculations by hand, you’re at risk for making a small mistake that can lead to a giant headache. There is a fantastic selection of software available— it may even feel overwhelming when you first begin doing the research – but if you take your time, read reviews and look for something that is designed to meet the needs of your particular type of business, you’re sure to end up satisfied. If you’re not sure what to look for, use this checklist of minimum requirements:
• Sales tracking
• Financial statements, cash flow statements and balance sheet
• Generating Invoices
• Contacts management and contact history tracking
• Budget planning
• Account to accept credit card payments
• Inventory management
2. Not Knowing How to Use the Software That You Have
It may seem funny, but the second most common mistake that small business owners make in terms of accounting is also about accounting software – it’s having the software in-house but not using it, not using it the right way, or not really knowing how to use it. Like the treadmill that sits in the corner of your bedroom and slowly becomes something to throw your clothes over, having invested in accounting software and then not actually using it (or using it the right way) is a reason for regret, and so much more beyond that. When you’re not using your software the right way, you leave yourself vulnerable to making accounting mistakes. More importantly, you end up taking far too much time on bookkeeping tasks that it could do for you quickly and efficiently. Most of the packages available come with tutorials, but if you need help, contact an accounting professional and ask them to run through bookkeeping basics with you so that you can use it to its best benefit.
3. Failing to Produce Monthly Financial Reports
A lot of small businesses tend to minimize the importance of financial reports, feeling that if they produce some snapshot every few months or even twice a year, it’s good enough. The truth is that if you have financial backers or are interested in getting additional investment in your business, having a monthly report is an essential tool for them, as well as a sign that you’re taking their investment seriously. More importantly, the more closely you monitor your company’s financial activities, the faster you can pick up on issues as they develop, including slow-paying clients, oversites in your accounts payable, and more.
4. Having the Numbers, But They’re Wrong
There are a lot of things that can lead to your financials being incorrect: it can be not using accounting software (or not using it correctly); failing to update data; inputting incorrect data; and more. Whatever the cause, the result is never good and can cause problems significant enough to close your business or scare investors away. Worse, it can leave you vulnerable to bad actors who can use the inaccuracy to perpetrate fraud.
5. Mixing Your Personal Accounts With Your Business Accounts
Even if you are operating a pass-through business, it is essential that you keep separate books, separate credit cards, and separate banking for your personal needs and your business needs. Failing to do this will make it nearly impossible to determine what expenses are deductible, what capital investments generate profit and more. Small oversights are more likely to occur in accounting for out-of-pocket expenses, and this generally leads to paying more in taxes than you need to. Worse, if you face an audit, it will lead to a nightmare of having to separate and justify accounting measures that have been taken.
6. Failure to Properly Manage Your Payroll
Payroll is one of the most complex areas of running a business. Not only do you want to make sure that you’re paying your employees appropriately, but you need to be sure that essential areas like payroll taxes and withholding are being done accurately. When in doubt, it makes sense to bring in outside professionals for assistance.