Are you struggling to have a grip on your small business’s finances?
First things first, thumbs up for noticing that things in the accounting department aren’t going too well. Some business owners never realize that their accounting ship is sinking until it’s too late.
Second, you’re not alone. The vast majority of small business owners don’t have sufficient accounting expertise, so they’re bound to run into challenges. But which are these accounting problems that owners commonly face?
In this article, we’re sharing some of the most common accounting challenges, as well as what you can do to overcome them.
Let’s crunch the numbers!
1. Cash Flow Problems
Did you know that of the businesses that fail, 82 percent do so because of cash flow problems? In other words, 8 in every 10 businesses that are on the path of failure are facing a cash crunch.
As a business, you should always maintain healthy cash flow. Money going out (expenses) should never exceed or even be equal to the money coming in (revenues). In fact, for your business to be profitable, revenues should be far greater than expenses.
Unfortunately, sometimes it’s difficult to prevent the gap between revenues and expenses from narrowing. Perhaps your sales are stagnant or slumping, yet you’ve got fixed expenses (such as rent, payroll, and debt repayments) you must meet.
Intricate planning and good decision-making go a long way in preventing cash flow problems. When starting a business, for example, ensure you have adequate working capital. This way, you’ll be able to sustain your business even if revenues take long to stream in.
2. Payroll Management
Small businesses that have employees often face problems with payroll management.
You see, you have to pay your workers – on time. However, paying out isn’t as simple as calculating the number of hours worked, multiplying it by the rate per hour, and then writing a check.
There are a couple of federal and state payroll laws you must adhere to. For instance, you need to withhold taxes and make other mandatory deductions. Suddenly, payroll becomes a complex function.
Lucky for you, there are lots of payroll software you can use to automate the function. But the best solution is to outsource to a payroll or accounting company, like the provider of these CPA services.
3. Financial Emergencies
Financial emergencies aren’t a new thing in business. You should always save for a rainy day, just as you do with your personal finances.
However, some emergencies can be unprecedented. The COVID-19 pandemic is an example of a situation that can throw your business into a massive emergency. With businesses shut down, sales have reduced while expenses are remaining largely unchanged, if not increasing.
While saving some money for financial emergencies is a good step, the best way to protect your business is to purchase business interruption insurance. This way, if an event that disrupts your business’s operations happens, your insurer will compensate you accordingly.
Avoid These Common Accounting Problems
Money is the lifeblood of your business, which means you should always ensure it’s circulating properly. However, accounting problems are a common occurrence. With this guide, you now know some of the most common problems and what you can do to overcome them.
Keep reading our blog for more small business tips and insights.
Interesting related article: “What is Cash Flow?“