Nearly half of small businesses do not engage with an accountant or a bookkeeper for their bookkeeping. Director, Michel Zerella outlines the most common bookkeeping challenges faced by small businesses and how you can overcome them.
As a small business owner who wears multiple hats, it can be difficult for you to manage every aspect of your business.
In my experience, it seems like owners spend more time focusing on sales, marketing, and managing customer relationships than they do on their business finances. But without accurate bookkeeping, the rest of your business can suffer as well.
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Managing Cash Flow
I’ve seen so many small business owners that simply look at their bank account balance and see a number that they think is suitable.
To properly manage your cash flow, you need to keep a close eye on your accounts receivables and accounts payables.
We suggest making sure you;
- Know your breakeven point
- Keep extra cash on reserve
- Collect receivables
- Extend payables
- Constantly monitor cash flow
- Audit your inventory
- Collect deposits
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Delayed Receivables
A major bookkeeping problem small businesses face daily, is managing their receivables. Depending on the type of business you have, you might be performing work and not getting paid for extended periods of time.
Tips you can start today:
- Don’t fall into a cycle that you can’t get out of. Clients that pay late or don’t pay at all can be the downfall of your business.
- Diligently track your receivables and establish effective invoicing habits.
- Follow up with unpaid invoices. Include due dates and impose late fees for bills that aren’t paid on time. You can even use software to automate billing and follow-ups.
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Delayed Payables
In addition to collecting what’s owed to you by your customers, you also need to make sure that you’re paying WHAT YOU OWE to suppliers.
You don’t want to develop a reputation for not paying or being late with payments. Delayed payables can lead to more serious problems, like incurring late fees or having deliveries withheld.
Most small business owners don’t intentionally delay their payables. They just don’t have a system in place for tracking and paying bills.
Paying your bills on time is just as important as collecting invoices. These responsibilities should fall on your bookkeeper.
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Payroll Management
Roughly 40% of small business owners incur ATO penalties due to payroll errors.
As a small business, you don’t have the luxury of having a separate department to manage your payroll.
That’s why we recommend taking advantage of a bookkeeping software with payroll management built-in. Handling all of this on your own can be overwhelming, which is why it’s good practice for small business owners to delegate payroll management to their bookkeepers.
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Tax Preparation
Your small business needs to pay taxes. Inaccurate bookkeeping will lead to inaccurate tax preparation, which can get you in trouble with the ATO.
Your taxes, like nearly every aspect of your finances, stem from your business bookkeeping process.
Missed quarterly estimates, under withholding, missed deductions, and improper filing are just a handful of examples that fall into this category. Even non-profit organisations need to make sure that paperwork is filed correctly for their exemption status.
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Tracking Expenses
Keeping track of paper receipts, digital invoices, and recurring expenses can be challenging. Without a proper system in place, accurately keeping track of your expenses can be nearly impossible.
You shouldn’t be digging through your car or desk drawers at the end of the month looking for a faded and crumpled piece of paper. That’s not effective.
Plus, employees with expense accounts will need to be reimbursed as well.
Falling behind on expense management can turn into a nightmare. The easiest way to track your expenses is with technology. Tools like Hubdoc software can streamline your business’ bookkeeping. It’s a great way to simplify the process of tracking your expenses.
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Reconciliation
Closing your books can be an extremely daunting task. It’s very easy for you to make a mistake that can lead to inaccurate calculations.
If there are mistakes in your books, it will cause misleading information in your financial reports. That’s a major problem since you’ll be using those reports to make forecasts and decisions about your business, or you’re showing these reports to a board, investors, or lenders.
Your books need to be reconciled on a regular basis. Waiting months to do this will just increase the chances that you’ll miss something or make a mistake.
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Fraud
Small business owners place a great deal of trust in their employees. Unfortunately, some people out there will take advantage of that trust.
According to a recent study, small businesses have the highest frequency of fraud compared to larger companies.
Some of the most common fraud cases include:
- Payroll schemes
- Cash theft
- Inventory theft
- Expense reimbursement schemes
- Cheque tampering
To prevent fraud, you need to establish consistency and transparency in your bookkeeping system.
If you have someone oversee the books, they can assist with;
- Setting up checks and a balances system
- Run internal audits on a regular basis
- Make sure everyone is held accountable
Conclusion
As a small business owner, you simply can’t manage your entire accounting system on your own.
The best and easiest way to overcome small business bookkeeping challenges is by engaging with a professional, like MasterTax. Tasks and responsibilities need to be delegated accordingly.
By using a professional, you’ll be able to focus your efforts on other areas of your business, while simultaneously improving the efficiencies of your finances.
If you would like to know more about how we can support you as a small business owner, please call our office on (08) 8172 9150 or email our friendly team.
