Small, home-based or growing businesses often encounter numerous challenges that a seasoned and well-established business is unlikely to face. Of which, the challenges related to finance and bookkeeping are the most pronounced. Mistakes with finance can be particularly strenuous and costly.
This post addresses the various difficulties related to bookkeeping for startups and small businesses, while also suggesting ways to avoid mistakes.
• Using the wrong accounting software
There are many types of accounting software available and only a professional bookkeeper can tell which will be the ideal choice for your business. Choosing the wrong software which does not have all the necessary features suitable for your business will just incur additional costs. At a basic level, the software you use should have the following features:
Options for inventory management
Invoice generation features
Financial statements and balance sheets
Budget planning options
Tax management features
Option to accept credit card payment
• Haphazard cash flow management
To survive and thrive in the competitive business environment consistently, skilfully managing your cash flow and always staying up to date with bills, receipts, and payments is essential. The primary challenge regarding cash flow that small businesses face is recognizing recurring costs. Analyzing your bills thoroughly to determine an average of recurring costs that you incur every month can help you to estimate the constant cash flow essential to keep the business alive. Another challenge is unforeseen expenses. Since small businesses do not always have consistent turn over every month, paying off unforeseen expenses can disrupt your entire budget plan if you are operating on a very marginal profit.
A professional bookkeeper can keep an accurate record, analyze the expenses, and determine a budget based on the records for you making it a wise choice to hire one.
• Making mistakes in financial records
When you are handling the accounts along with other segments of the business alone, mistakes can happen. But errors with financial records can lead to a major loss. All other business operations are dependent on the finance and they can go haywire if there are errors in your financial statements. Irregular or delayed data entry can lead to missed records. When the data is not periodically updated, it can lead to negative balance and invoices to be paid can go unnoticed due to haphazard record maintenance. Missing payment dates is bad for reputation among suppliers and can hinder your business growth. When you have a professional account receivable and payable service at hand, such troubles can be avoided.
• Mixing personal and business finance
When you mix up your personal and business expenses, estimating the profit will become difficult. Mix-up happens when you do not separate your business and personal account or the related credit cards. Even if you have separated the accounts and cards, ensure that the business cards are strictly used only for expenses related to your business. Make this a habit so that you are easily able to identify the expense related to the business and keep track of them from a single balance sheet.
The problem can happen the other way around if you are handling small business expenses from your personal funds and fail to keep a record of these. When this information goes unrecorded, it makes your business look stronger than it is which can be problematic when you are trying to estimate where you stand financially.
• Making mistakes with tax filing
If you have a proper understanding of the tax filings and returns you are eligible for, you can easily save a significant amount of money in taxation which can be used for your business improvements or increase the profit margin. Also, missing tax filing or underpaying your taxes can lead to fines which will affect the profit amount. Small businesses in particular face these issues when the owner tries to keep track of every financial segment single-handedly.
Hiring a professional bookkeeper will also ensure that you have help with tax filing and maintaining an accurate record of it.
• Starting new projects without budgeting
Coming up with new inventories that your potential clients are likely to look for helps the business to grow. But, if you do not have a clear and concrete vision, particularly regarding the expenses of the project and the overall budget, it can doom your business. Plan and estimate the expenses accurately before you undertake any such major project. A proper budget estimation can be done when you are using the right software and have experienced accounting professionals to aid you. Consider sharing your project plans with a professional accountant as they can give you a better idea of how far the project is feasible.
• Not hiring the best accountant
Many small business owners are under the impression that accounting and bookkeeping services are expensive and often avoid hiring an accountant at all. However, there are many accounting services which are designed for small scale businesses and if you find the right strategic ideal for your business at an early stage, it can help your business grow significantly and consistently. Getting pro-level services from experienced bookkeepers will help you to get over the challenge quickly. Look for services from the accountant which are ideal for your business needs so that you can make the most of their skills.
The bookkeeping challenges faced by small businesses are particularly daunting, as financing is almost like walking on eggshells. Seeking professional bookkeeping services from the beginning of the business will prevent future troubles and help your business to thrive and flourish steadily.