Small businesses always have new things that become challenges for them, and must be tackled to survive. It's not uncommon for small businesses to experience accounting challenges, and some small business owners fear that their businesses will have to bear the same burden as accounting challenges in corporations.
While accounting challenges might be frightening for many startups, we will discuss what are the possible accounting problems faced by entrepreneurs in the early days of opening their business. Hope this article will help you to tackle the accounting problems and give you an idea of what you might be facing.
How does accounting impact small businesses?
Accounting is an extremely beneficial thing for business, it helps owners, investors, managers, and stakeholders to keep track of the financial performance and track assets, liabilities, cash flow, and income. When business owners understand how their financial condition is, it enables them to make the next accounting decisions.
Businesses that do not track their financial condition will result in unnecessary expenses, greater expenses than income, or even bankruptcy. To avoid these things, we need to know some of the accounting challenges that are often faced by small businesses.
10 accounting challenges entrepreneurs must deal with
- Managing cash flow
It's a big challenge for small businesses in managing cash flow. The percentage of businesses that fail because cash flow is higher than other problems. Small businesses find it challenging to keep the cash flow steady, because they find it challenging to cover recurring costs and try to stay on business.
An easy way to stay on top of cash flow, is to analyze bills carefully. Pay attention to the monthly expenses, and try to cut costs where you think they can be reduced. If there is inventory that is rarely used, you can sell it to generate cash.
- Unexpected expenses
Some examples of unexpected expenses are employee health insurance costs when they fall or slip while working, one-time government taxes, essential office inventory that is suddenly damaged, etc. If a small business earns more than usual and might be in good shape, set aside some for emergencies or unexpected expenses.
Don't forget to always record how much you save, and how much you spend on an expense. If you have a lot of records about unexpected expenses, you can estimate how much it costs to be prepared each month for unexpected things.
- Using accounting software
Although small businesses need good records for bookkeeping, using accounting software is sometimes unnecessary. In order to run accounting software, you need to have a basic understanding of accounting, and you will need to do a lot of installation. You need to learn about financial health to utilize accounting software properly.
If you are satisfied with manual recording and can be checked periodically, then using accounting software can be postponed until you need it. Some software requires an annual rental fee or purchase of a license, and is a significant problem for small businesses.
- Reporting finances
Every business in Hong Kong must prepare financial statements by submitting their profit tax return and the adjacent reports. The annual filing needs to be studied, or company owners are advised to seek professional services to ensure that the company complies with the regulations. Professionals will help you with various legal services, including tax compliance for individuals and companies.
- Errors and miscalculations
If the recording is only done once and does not use accounting software, there is a possibility of miscalculations or transactions that are forgotten to be recorded. This is common in small businesses where they often postpone income or expenses because they feel that the amount is small. No matter how small your income and expenses are, you must record it as soon as you can prevent unrecorded financial data.
How to Reduce Common Accounting Errors in Small Business
Lots of errors and miscalculations will create an unmatched balance sheet, and can be a big disaster. Never let anything go unchecked, and record every single detail of a transaction as soon as it happens.
- Regulating payroll
Managing payroll is important in small businesses, because each employee must be classified properly. Each employee has a different salary amount, and it affects taxes. Ensuring employees are paid according to the agreement, and properly tracking when employees have holidays. Now there are many accounting software that can make it easier for payroll, but you must have good and thorough records.
- Analyzing finances
Reconciling or analyzing your finances may be annoying, but it's a must. You have to check if there is an error that leads to incorrect data. If you do not use accounting software, you must verify all of your transactions on a monthly basis. Don't forget to run through the accounting books every end of the day to ensure no transactions are forgotten. Financial decisions can exist because you are analyzing and advising.
- Securing data
Secure your financial data whether it's online or offline. If your financial data is put online, there are many possibilities for your data getting targeted by hackers. You can use cybersecurity for online data. If the data is online, you can only entrust financial data to a few important people. Not all employees are allowed to know, because this is a company secret. Besides you writing in a journal, you can put financial data in excel or accounting software.
- Bank accounts
A common mistake small businesses make is combining bank accounts. The owners cannot distinguish between office income and their personal income. It's impossible to track all of the finances. Personal and business expenses may not be combined into one bank account. If it continues, then it's a major accounting problem that can lead to bankruptcy or fraud.
- Business financial health
Bookkeeping perfectly, maintaining and operating the business's accounting is not enough. You need to analyze, assign a specific budget that derives to the next steps, and do careful analysis. You can ask an accountant or conduct an audit with a professional to determine the next financial step. The business's financial health can be seen from how you process and also continue to develop the business.
How do you fix accounting problems?
Fixing accounting problems can be done in several ways. First, you can hire someone qualified for detailed bookkeeping of all financial company data. Next, you can use accounting software if there are a lot of transactions, income and expenses. Don't forget to do an audit and hire a professional accountant for your next step.
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