Small business owners face many challenges every day, including accounting. The following will help entrepreneurs stay on top of their businesses.
Small business owners need to perform multiple tasks such as hiring appropriate people to maintain relationships with their customers, marketing their brand, and keep track of their business accounts and profits.
You might not like accounting, but it is crucial for your small business to keep your books organized. Accounting translates numbers into an understandable statement regarding business profitability and provides details about financial growth.
Accounting involves the recording, analyzing, and summarizing of a business’ financial transactions. This by itself is difficult; however, small business owners must overcome other common financial obstacles, details and solutions of which are given below:
1. Cash flow
Cash flow management is a big problem for startups and small business. A gargantuan 82% of businesses fail due to cash flow problems. It is difficult for owners of small business to keep their business alive by earmarking funds to cover recurring expenses. To prevent this, one should be thorough when demanding payments from customers and analyze their bills carefully.
2. Unforeseen expenses
A retail store earning $150,000 per annum might seem to be in good shape, until they have to cough up $1.3 million for a slip and fall lawsuit against them, and there is no insurance coverage. Even smaller expenses like escalation in the cost of goods or one-time government tax can hurt their finances. Manage your small term expenses by optimizing your current credit, but avoid cost changes from threatening your total liquidity by monitoring long-term profitability.
3. Disaster preparedness
Unpredictable natural disasters hit small firms extremely hard. You require cash in hand to revive your business following a catastrophic event.
All U.S. business have to pay taxes, but availing of deductions reduces your tax liability. Home office deductions are important for running profits of a home-based business. According to The National Federation of Independent Business, Section 179 allows you to instantly deduct the cost of investment in a business, which you can re-invest into your business.
5. Managing payroll
Small business owners can face difficulties in managing payroll or HR. If you lack knowledge about HMRC’s real-time information (RTI), you do not know what tax code to add to new employees.
A recent survey shows that more than 50% of the businesses polled mentioned the scope of improvement in their payroll process. Common problems were related to administrative burden, compliance issues, tracking employee absence, incompatible software, over and under due payments, incorrect tax filing, and organizational inconsistency. Talk to a small business accountant specialist for help with your business.
6. Keeping on top of expenses
Maintaining records of expenses might be tough but are extremely vital for small businesses to process and remain ahead in the market. Thankfully, there is numerous accounting software available, which can help you go paperless. It is best to research and find one that best meets your business’s needs.
7. Reconciling your books
Closing your books without establishing a suitable accounting system can be annoying. Making a mistake in your books can lead to misleading data analyses, incorrect calculations, and IRS audits too. Therefore, verify all your business transactions every month, if not weekly or daily. Make a habit of browsing your accounting books at the end of each day.
8. Analyzing your finances
Make a sound financial decision by advising, analyzing, and interpreting. What do those numbers signify and how can you improve them? To determine the best advice and decisions, interpret and analyze these numbers. This helps you find loopholes affecting your business growth and enhance your financial position in the market.
Avoiding Accounting Mistakes
Select the right accountant. An experienced CPA or accountant can help your business avoid the above accounting mistakes, as they will advise you on many issues apart from those mentioned above to help grow your business in this agile market.
It can be costly to hire an in-house accountant, but hiring a qualified professional at an early stage is important. Outsourcing your accounting and finance requirements can be a feasible, affordable way to deal with those problems or other accounting challenges faster, if you are a startup or small business owner these or other accounting challenges, and start focusing on what you do best.