Common Small Business Bookkeeping Problems and Solutions
by Eric Moore, on Nov 2, 2018 9:10:00 AM
It's a tough environment for small businesses in the United States, particularly new ones. The Bureau of Labor
Statistics reports that almost 20% fail in their first year and only about half make it to five years. The threats are piling
up, and they range from failing to find a viable product or service to customer service gaffes and even cybersecurity
issues. But some of the biggest problems that small businesses face are financial in nature.
Financial woes can impact a company of any size. 2018 marks the 10-year anniversary of the height of the financial
crisis when regulators walked into Seattle's Washington Mutual and shut down one of this nation's largest regional
savings and loans for good. Few longtime area residents have forgotten the impact that Frederick & Nelson had on the
area's retail scene, before becoming victim to some strategic and financial missteps. Whether a company is large or
small, public or private, many of these issues begin at the granular level.
Small businesses can be adversely impacted by bookkeeping challenges. Many circumstances contribute to accounting
and financial frustrations, including lack of visibility into upcoming cash flows, consistently late financial statements,
and more. But it doesn’t have to be that way. Affordable solutions are available to help business owners take control
of their finances, make better decisions, and increase their profitability. Even better, these solutions can ensure that
your company doesn't become just another statistic.
Signs of Bookkeeping Problems
The good news is that many of the causes of small business failure are completely avoidable. This is particularly the
case when it comes to the financial and accounting side of the equation. If you are paying close enough attention, you
should be able to spot some of the warning signs that your business is in trouble. Some red flags that you have
bookkeeping troubles include:
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Unsuccessfully applying for bank funding. Your company's inability to secure bank funding can be a signal of
several issues. Your bookkeepers may be applying to too many places at once, may not be able to follow
application instructions, or might not have the data available that is requested. Or worse, your finances might
be in such poor shape that you simply don't qualify.
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Accounting reveals that you can't cover payroll. A priority of any business should be to pay its employees first.
If accounting reveals that you can't cover payroll and this comes as a surprise, someone has dropped the ball
several steps in the past.
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Out of compliance with loan covenants. When your company borrows money, the loan often comes with
stipulations which, when violated, can get your company into hot water with the lender. There are three types
of loan covenants. (1) Affirmative, which require you to do certain things such as carry insurance or submit
financial statements, (2) Negative, which precludes you from doing certain things without approval such as
selling assets or taking on additional debt, and (3) Financial, which require you to maintain certain
performance or liquidity ratios. If you violate a stated covenant, a lender has remedies that might include
calling in the loan or seizing assets posted as collateral. Your bookkeeping function should help ensure that
these events don't occur.
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A lack of clear, repeatable monthly closing processes. When your bookkeeper's monthly closing processes
are haphazard, there's a good chance that something is going to be overlooked. This could create a snowball
effect of errors leading to financial disaster. There could be unreconciled accounts, missed expenses, mistakes
in payroll, and other errors that will be difficult to correct down the road.
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Monthly financial statements not completed timely. If your bookkeeper isn't updating the books timely, this
is going to lead to poor business decisions since the available data isn't current. How can you make a staffing,
inventory, or equipment replacement decision if your financial information is not up to date? You are also
going to lose revenue when you eventually have to fix this situation.
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Hearing excuses instead of getting deliverables. If you are hearing excuses from a bookkeeper instead of
seeing results, it's probably time to make a change. While every business and department has challenges, the
future of your business is too important to leave something like this to chance.
Solutions to Common Bookkeeping Challenges
No one wants to wake up one morning to find that their business is on the brink of failure. This can be a heartbreaking
realization, and it is compounded by the fact that there are some proactive measures you can take to ward off disaster.
Whether you already see a few of signs of bookkeeping problems in your business or want to make sure that these
never happen, some of the best solutions to these challenges include:
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Technology. Many early-stage and even established small businesses continue to track and manage their
financials using antiquated tools like Excel. This might work in the opening days of a startup, but most
companies need a more robust system. The best solution is to use an accounting software solution that
provides regular, automatic updates. One example is QuickBooks, which operates and saves your data on the
cloud.
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Automation. There is no reason for small businesses today not to embrace technology. It makes many tasks
simpler and even completely eliminates some work through automation. If your bookkeeper is overworked
due to their data entry requirements, you can take some of that burden away by allowing your bank, or other
third-party, to automatically feed entries into your accounting or operations system.
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Training. Times change, and it would be a shame to fall behind or even lose your business because your
accounting team has failed to stay up to date. You can keep them abreast of changes and ensure that you have
the best staff on your team through several initiatives:
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Instructional videos. Depending on interest areas and current skill levels, there are a variety of online
training opportunities for bookkeepers. For example, Quickbooks has free training courses that can
even lead to a certification.
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Engage a trainer/mentor. If a new state payroll regulation is passed or there are significant changes
to the tax law (again), find an expert to come into your workplace to give a seminar on how these
changes will impact financial filings and workflow. Your company can also establish a mentor
program to help junior staff become better bookkeepers and future managers.
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Formal education. Your company can also sponsor the continuing education of employees in the
accounting field with programs like tuition reimbursement and pay incentives for advanced degrees.
Outsourcing. One of the best ways that you can ensure bookkeeping excellence is to outsource. This is
particularly effective when you choose a partner or professional that has a higher skill level. At Accounting
Solutions Partners, we connect clients with part-time bookkeepers and accountants whose proven skill level
means that the work is accomplished faster and more accurately.
Benefits of Addressing Accounting Department Shortfalls
Bookkeeping isn't just another area of operations that needs to be dealt with or some administrative burden. It is a
vital function necessary for the survival and growth of your business. Without accurate and timely books, you have no
numbers to review, and without that point of reference, your company can't accomplish basic tasks such as paying
employees and filing tax returns.
Putting the spotlight on these shortfalls and taking steps to correct them should be a top priority for any business.
When you set aside the time and resources to do this, some of the benefits your business will receive include:
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Visibility to the company's cash position. One of the primary reasons that businesses fail is problems with
cash flow. When you get a handle on your company's bookkeeping shortfalls, you will instantly know where
you stand with respect to your cash position at all times.
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Opportunity to make more timely and better-informed decisions. Better and more timely information
translates to healthier business decisions. Your company makes more informed choices about adding new
product lines, bringing on new staff, or investing in equipment.
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Improved banking and vendor relations. When your accounting function is suffering, your relationships with
business partners will deteriorate as well. You can turn this around and strengthen these bonds, which can be
a catalyst for business growth.
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Accurate and timely data for strategic initiatives. The strategic direction of your business will determine its
level of growth and financial success. When you have timely and accurate data from your bookkeeping team,
you will be able to create the strongest strategic plan possible for your company.
Businesses don’t have to settle for mediocrity. They can have a stronger position and healthier operations when
financial statements are on time, and on point. A competitive advantage can often be gained when financial
performance is reported like clockwork. Affordable solutions are available to help business owners take control of
their finances, make better decisions, and increase their profitability.
4 Bookkeeping challenges faced by small businesses that you can solve (16 Oct 2019)
Many clients look to their accountant for business direction and advice as well as just crunching the numbers. Startup
and small business owners face lots of challenges on a daily basis and accounting related tasks are some of the main
ones that most struggle with.
We explore four of the most common bookkeeping challenges that small businesses face that you have the ability to
offer solutions to. Take these tasks off your client’s plate and let them focus on what they do best – whether that’s
manufacturing, merchandising or offering a service.
Problem 1 – Cash-flow
It can be very hard for small businesses to keep tight control of their finances and outgoings. They might not know the
smart ways to spend money when they haven’t got much experience. Suggest a review of the following with your
client to keep their cash-flow healthy.
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Are they keeping on top of expenses?
Are they getting multiple quotes and recommendations for any sizeable investments – whether that be
marketing support or a new printer?
Are they keeping track of how much they need to cover recurring payments and are they focused on how they
generate enough income to cover those as a minimum?
Are they invoicing as soon as they can, asking for immediate payment and chasing early for overdue payments?
Are they setting aside money for tax bills?
Have they tried to think about any expenses that might come up in the future so there aren’t any nasty
surprises and do they have a contingency fund?
Are they tracking and reviewing the return on investment of any marketing to see if it’s working and worth
repeating?
Do they know the value of their customers/clients so they are ensuring that the majority of their effort is
concentrated on their most lucrative customers or products and are they doing any work for free?
Do they have the confidence to price themselves in line with the market?
What you could offer: A cash-flow health check
Problem 2 – Having irregular financial reports
Having financial reports that don’t match up can be a huge problem for a small business. They will not be able to get
an accurate picture of how they are performing as they could be missing data, have the wrong information or be
misinterpreting it. On top of this, they may not be compliant.
Help your clients to get into good habits and strict processes in place for all their accounting and make sure they keep
on top of regular reviews of their ingoing and outgoing transactions. You could help them to implement software or
make the most of systems that they already have but might not be using to their potential.
What you could offer: Financial report audit
Problem 3 – Being investor ready
If a business is looking to attract investors for growth – are all their accounts and plans in order? What is their business
model for growth, what are their USPs and what specialist experience do they have – why should an investor choose
them? You can help them to complete their business plan with a detailed cash-flow forecast, profit and loss and breakeven account for the next five years. Analyse the current state of their finances to review their current position in the
market and find anything that could be hampering their business growth – before an investor does!
What you could offer: Business plan creation
Problem 4 – Payroll management
Typically, small businesses can feel confused about payroll (what is the best system to implement, what tax codes
should they be using?). They will often find that it is a real admin overload and something that they don’t want to be
doing when they should be focusing on growing their business in other ways.
The most common problems that clients have related to payroll are; tracking employee absence, over- or underpaying,
compliance, tax filing and using incompatible software. You can help your clients to change and innovate – to choose
software that will report to HMRC or you can run payroll for them to remove the administrative burden.
What you could offer: Payroll systems review and recommendations
In summary
When a small business is selecting an accountant, they will look for someone dedicated to taking their business further
and to help them optimize the systems that they are using. By offering a direct service to solve these problems and
others for your clients you can build a really good reputation and stand out from other accountants in your area.
Answer the following in a 1 whole sheet of paper. Refer to the sales projections of your own product/service.
1. What are the reasons why you should keep a business record of your business/product? Jot down at least 7 reasons.
2. Define the following terms:
a. balance sheet
b. income statement
c. cash flow projections
d. summary of sales and cash receipts