How has operating your small business been like for you? During the initial phase, you start small, look for steady ground, and then grow your business further. The initial stage also referred to as the development phase, comes with a lot of lessons to learn from. This is the time when you are going to deal with the most challenges.
Also, this is the appropriate time for you to get hold of your bookkeeping skills in order to manage your finances correctly.
Bookkeeping might appear to be hard at first, however, keep in mind that it if taken care of properly, it would help in contributing a lot towards the overall health of your small business. Thus, as a small business owner, you must make sure that you spend some time every week on this chore. Listed below are a few common bookkeeping challenges faced by small businesses and solutions to overcome them:
Accounts Receivable and Collections:
What is the process followed by your small business from invoicing to the collection of payments? This process often can be very complicated, therefore usually gives birth to a lot more complications. Getting invoices made by your accounting division and sending them on a regular basis, ideally whenever the products or services are rendered, will make sure that all things are documented and will also facilitate proper cash flow.
Here you can see how to create a professional-looking invoice template for your business.
Likewise, you require an approach to follow up on pending invoices on a consistent basis. A lot of businesses do not implement this and end up being in financial troubles consequently. Furthermore, to overcome this problem, it is advised to put into practice an automated process that is going to send email reminders autonomously, and you will undoubtedly find that a large number of your customers pay you without delay, leaving you to get hold of just those who don’t acknowledge your invoice. This will help you in saving several hours every month.
By implementing this approach, money will be readily accessible to you to cover your expenditures, help take care of your business liabilities as well as promote the growth of your small business.
Cash Flow Problems:
Cash flow complications usually arise whenever you mix your business finances with the personal finances. A lot of small businesses across the globe make use of the same bank account for both, leading to a twisted clutter, which is quite tricky to clean up. If you mix both, you would end up withdrawing money as required for your personal expenditures and are thereupon there could be cases when you don’t have funds to bear business expenses or for fulfilling government financial obligations, such as taxes.
By distinguishing your company and personal bank accounts from the first day, you will be freeing yourself from a lot of problems in the long run.
Irregular Financial Reports:
In a small business venture, it is usually believed that it is alright to generate financial reports on a quarterly or perhaps a bi-annual schedule. Nevertheless, monthly financial statements help in demonstrating to investors that you are meticulously keeping track of your business earnings and spending.
If you do not generate financial reports on a monthly basis, the chances are that you may have a negative account balance just because you took care of expenses blindly and forgetting to update your income statement. Invoices to be paid by the business might get overlooked, and it could result in the negative credibility of your business. It may terminate your contracts with the vendors. Business growth may also impede or perhaps considerably drop.
No Record of Minor Expenses:
Having to pay for business expenses from your own pocket may ultimately make your business appear stronger with regards to cash flow than it indeed is. It is crucial that you keep details of all those small expenses in order to get an actual picture of where exactly your small business stands in terms of financials.
Keeping track of receipts and maintaining them methodically is amongst the significant challenges faced by small business owners nowadays. To overcome this problem, ensure that you organize all the paperwork in a proper manner and keep them someplace safe since a lot of accounting aspects depend on accurate management of expenses.
A quality accounting software can prove to be useful in this endeavor. With regards to the storage, you can save all the documents offline; however, maintaining the data in the cloud is a far better way as a result of easy accessibility, and increased security and safety. Take a picture or scan the paper receipt or invoice and upload it to the account in your ledger or store on a cloud platform. There are a lot of cloud-based accounting software programs available in the marketing nowadays, such as QuickBooks, Xero etc. They can help you keep your financial paperwork safe and accessible at all times.
Poor Payroll Management:
Handling payroll is a complicated process, and in case you happen to make mistakes, there are chances of getting penalized by the government authorities. Payroll management isn’t just related to the wages, but it additionally involves tax liabilities, superannuation, incentives, benefits, as well as other aspects. Seek help of an expert in payroll processing and management to fulfill your financial obligations.
Not Closing Your Accounts:
Preferably, you must close your bank accounts on a monthly basis to ensure that crucial figures along with financial metrics are available easily. By postponing this step, you won’t be in a position to get timely information, obtain helpful insights or make valuable business decisions. You furthermore may be at the risk of documenting the transactions in a prior period wherein you already have recorded externally, especially to government authorities. Closing your bank accounts every month is going to help prevent this. Looks complicated? Then it is important to consult with an expert accounting outsourcing company.
Wrong Understanding of Accounting Data:
Accounting software is just a tool to make your work easy. However, you still need to take decisions and they should only be taken after thoroughly reading the reports and understanding the financial data. Data interpretation is done by making the comparison of financial reports with the income statements as well as balance sheets. This often is complicated and confusing, thus using the services of a bookkeeping services provider could be an ideal solution.
Small business owners should consider focusing on the long-term outcomes of their financial decisions upon obtaining the complete knowledge of their business accounting data. Taking short-run decisions after analysis of financial records will not present render your business any long-run benefits.