Small Business Accounting Challenges and How to Overcome Them
Every business owner knows that their job is endless. Unlike, managers, workers, or other stakeholders in a business, the owner is responsible to be on top of every issue and proactively solve those issues. If they fail to overcome those challenges, the business will eventually cease to operate.
As a business owner, one will likely recognize challenges that impact operations or sales. But one of the more challenging issues is accounting. Most business owners are experts in their field of operation, yet many only have a rudimentary understanding of accounting.
Most of their understanding is related to finance or knowing how much is in the bank. Issues such as cash flow, bookkeeping, and even budgeting are either ignored or pushed to the back burner as other items must be immediately addressed. This blog will help you identify some of the most common accounting challenges a small business owner will face and how you can tackle or overcome those challenges.
Time Management
This is likely one of the most hidden challenges a business owner will face regarding accounting issues. We all know how hard it can be to get things done in the compact timeframe of daily life. So, it is unsurprising that time management is a significant challenge regarding accounting functions at a business.
As a business owner, you will know when bills are due, that there is enough in the checking account to meet weekly expenses and the weekly revenue amounts. But do you have enough time in the day to examine every bank statement or credit card bill for accuracy? Most people in their individual lives have fallen into the trap of paying an annual subscription to a website that they used once, 4 years ago. They are still charged every year for access to that website but used it only once in their lifetime. The same is true for any business owner and it might be a worse situation. If you have strong revenues, it is much easier for non-regular or service fees to be missed. If you had more time to review accounting and statements, those expenses might be caught, but the time it takes to look for those issues is often fleeting. Time management is one of the best “cures” one could employ in accounting challenges.
By setting aside time, usually on a regular or reoccurring basis, you are giving yourself the time needed to find those errors. Indeed, setting aside a little extra time each week or even each day might save you more money than you might actually earn in that same timeframe. Organization is the best method to tackle time management regarding accounting issues. Set aside a specific time of the week or day to look at the bills, analyze revenues, look at cash flow, or even just quiet time to input bills into an accounting system. This same method can be used if you have a firm that does your books. Setting aside the time each week to call your accountant and take a few minutes to review expenses and income. That organized time to focus on accounting can be some of the best time devoted to your business. For some more ideas or expansion of how time management can help you, you might want to look at these articles- https://www.business.com/articles/time-management-tips-for-small-business-owners/
Accurate Bookkeeping
Financial management, whether managing the finances of a business loan or accurately recording a credit card statement, can be a challenge even to a person that loves to work with numbers. Just think about a monthly business credit card. Even for a small company, the business might have over 50 or 100 charges on the account in a month. Are they all accurate? How about utility bills? We all have felt the pinch of increased energy costs on the bottom line, but are you sure the utility bill is 100 percent accurate? Are you being charged correctly for your zoning and/or usage? These and so many other situations can all be examined through precise bookkeeping. A good example is what happens if you see a 10 percent increase in your utility bill. It might be an increase in rates that went through, but it could be someone stealing power from your company. The point isn't that these could happen, but using accurate bookkeeping you have a better chance to catch an issue before it becomes hidden in the financials.
For accurate bookkeeping, the best strategy is related to the previous point. Setting a specific time to input or review the company’s accounting is the first step to ensuring accurate bookkeeping. Even working with a firm that handles your accounting and bookkeeping needs, it is essential to take the time to review the statements and check them for accuracy as it is the first step to managing and overcoming accounting challenges.
Cash Flow Management
Cash flow is the movement of cash as it moves through a company, for some, it can be a challenging concept to grasp as some parts of cash flow can be complex. Put, when you follow $1 of income from a sale point to its final location- toward expenses or added to savings- that is cash flow management. However, since most sales or revenues are more than a dollar, the cash flow will be more diverse, not just watching where $1 goes but how all cash moves from income to expenses and/or savings. It is the disbursement that often can cause confusion as the money can be used to pay partial bills, added funds to pay down debt, or used to increase liquidity. As a business owner having a good grasp on the cash flow process can help improve the efficient use of money for your firm.
As an example, it’s possible that you might make enough money in one month to pay off a loan that is scheduled to be paid off in three months. Using cash flow analysis to monitor and manage your cash management can help one determine the best way to manage this extra cash in the company. It might be better to keep the excess cash in the company’s coffers, improving its liquidity position, which could make the company’s finances appear better for a new loan that may replace the current debt scheduled to be paid off in 3 months. Using cash flow management is a way to optimize the use of a company’s cash as an asset for the company. If the firm has a good cash flow, it’s possible that the firm could manage its finances to become an added driver of profitability. In essence, cash flow management is another driver of profits for the company. To learn some other strategies of cash flow management, you might want to look at these articles- https://www.forbes.com/sites/forbesbusinesscouncil/2021/08/09/five-challenges-business-owners-face-and-how-to-overcome-them/?sh=39f6a34e636a
https://www.business.com/articles/small-business-accounting-challenges/
Budgeting
While cash flow management may lead to better control of your cash positions and the company’s profitability, another derivative of the benefits of using cash flow analysis is that it improves the budgeting process. Since cash flow can leave extra “spare” or allocated cash in a firm’s banking account, it is always good to analyze how that extra cash can be used in the future budgets of the firm.
That is one of the benefits of budgeting; you can plan how to spend your income and resources. Should you pay down your debt next month? Or would it be better to use that money to buy a new piece of machinery? Or would it be better to leave that money in the bank and improve your cash position to weather an economic storm? Budgeting is more than just the usual idea of allocating funds for this month's bills. A well-thought-out budgeting process can help identify how funds can best be used over a year. Budgeting can help identify your most effective sales points or even the best equipment that leads to the most profitability for the firm. This is one of the best benefits of budgeting; it can be a proactive way to manage your firm in an intangible but logical methodology. For some other ideas on how to use budgeting as a means to improve operations in conjunction with cash flow management and accounting challenges, check out these articles- https://www.netsuite.com/portal/resource/articles/accounting/accounting-challenges.shtml
https://www.business.com/articles/small-business-accounting-challenges/
Summing it all up
Ownership of a small business can be the most challenging and rewarding experience in a person’s life. While most owners expect that there will be challenges, they often don’t think about the challenges that accounting can have on their venture. But, while all business owners will face some challenges from their accounting management, it does not have to be a negative experience or impact on your firm. Starting with a solid plan on managing your time, especially setting up a regular methodology for handling accounting issues is the best first step to adequately managing accounting. Building a plan to ensure accurate bookkeeping can lead to the company processing accounts appropriately. Once the accounts are sufficiently accumulated, the owner can use cash flow management and budgeting principles to improve the company’s financial management. Building techniques that turn the finances of the company into a hidden asset for the firm.
