9 Bookkeeping Challenges for Small Business and Their Solutions

Small businesses often face the same bookkeeping challenges as large corporations. Small business owners, however, cannot afford to throw away money on extra expenses or take unwarranted chances.

Especially with 60% of small business owners claiming to have no bookkeeping knowledge, it’s imperative for most small businesses to call in help whenever needed.

Without proper bookkeeping methods and infrastructure, small businesses in the USA often face the following challenges.

Biggest Bookkeeping Challenges for Small Businesses

According to our observations, owners seem to spend more time on sales, marketing, and customer relationship management than financial management. Due to this, they tend to face the following challenges.

1. Accounts Receivable/Collections

Small companies often have difficulty optimizing their accounts receivables.

For example, they might perform work and not be compensated for a long period. It’s crucial for small businesses to track their accounts receivable diligently if they don’t want their business to fail short on cash flow; with good cash flow tips and proper management, it can be achieved easily.

If the clients pay late or don’t pay at all, the business is obviously in trouble. To handle this issue, businesses should establish a habit of diligently monitoring their accounts receivables.

They should follow up on unpaid invoices, send invoices appropriately, and charge late fees if payments aren’t made on time. They can even use billing software to automatically send invoices and follow up.

Facilitating online payments is also a great way for small businesses to eliminate payment delays.

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2. Irregular Cash Flow

Liquidity and investment opportunities management can be a significant accounting challenge for small businesses seeking to expand their markets.

Cash flow, in simple terms, refers to the cash available at your business. Without a well-organized cash flow, it would be challenging to track balance payments and accounts receivable.

In addition, if you are starting a small business, you will have to handle upfront expenses. Small businesses often make cash flow mistakes, such as your cash flow may be affected as a result since businesses tend to make significant purchases without considering other capital sources.

The best approach is to manage a cash flow statement to have a clear insight into your liquid resources.

Following is an example of a cash flow statement.

Source: Harvard Business School Online

3. Managing Paperwork

It can be difficult for small business owners to remember their expenses, especially if they track them on paper. Hence, achieving accuracy when it comes to tracking your expenses can be challenging if you don’t have a proper system in place.

Of course, it is not an efficient strategy to rummage around your car or desk drawers at the end of the month in search of a crumpled and faded piece of paper.

It is vital to track your expenses as you incur them in order to avoid forgetting them. Keeping track of your reimbursable expenses is just as critical as saving all of your receipts—one allows you to record a paper trail in audits, whereas the other will enable you to monitor your firm’s financial well-being.

Hence, small businesses should keep track of their expenditures using technology. Expense management software or even accounting suits can help small businesses achieve maximum accuracy in expense management.

4. Closing the Books Each Month

Small businesses should gather all of their crucial information and metrics at the end of each month if they want to create a profitable business.

Gathering this data won’t be possible if they don’t close all of their bank accounts at the end of the month. By not doing so, they won’t be able to report timely information, make well-informed decisions, or gather critical information.

Because of the risks involved, small businesses must keep all of their accounts closed at the end of each and every month. Since this risk is so prevalent, seeking the assistance of an expert accountant is strongly encouraged.

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5. Managing Payroll

If a small business requires workers, the organization is required to compensate all its employees and manage payroll.

According to the IRS, maintaining accurate employee payroll records is critical for compliance, but this is the greatest obstacle for small businesses.

In addition, the Fair Labor Standards Act (FLSA) requires payroll records to be kept for three years.

Hence, businesses of any scale must keep certain records containing identifying information for each non-exempt worker, including data about hours worked and wages earned. And noncompliance may result in substantial penalties.

But managing all such information is tricky and resource-thrift for small businesses. Even acquiring a payroll management software can be expensive, considering that they don’t have too many employees. Hence, it’s always recommended for small businesses to outsource their payroll management operations to expert consultants.

6. Tax Preparation

Even businesses must pay taxes, no matter their scale. Still, there are many small business owners out there who have trouble meeting the demands of their taxes.

Missed quarterly estimates, under withholding, missed deductions, and improper filings are just a few examples of common mistakes in bookkeeping.

Even if a company is a nonprofit, it must file its documents correctly in order to keep its exemption status.

Your taxes, like all aspects of your financial life, are based on the firm’s accounting process.

You may be paying too much in taxes if your accounts are not accurately kept. Hence, it’s always advised to find experts to manage books and helps in tax preparation.

7. Not Being Able to Utilize Accounting Software

Keeping a comprehensive accounting record is not simple, and this is why small businesses often find themselves drowning in numbers when they are operating.

Similarly, just adopting an accounting system isn’t enough. Small businesses must be aware of the financial well-being of their small business in order to use accounting software effectively.

8. Using the Wrong Bookkeeping Methodology

Even though accountants usually use the accrual method to keep track of money, customers prefer to use the cash method. The cash basis method records actual payments, such as invoices. It is possible to record your receivables and payables with the cash method, but it does not consider your accounts receivables and payables.

Whereas the accrual method records accrued expenses and earnings, which is the opposite of the cash method. However, a professional accountant may testify that using the accrual method over a cash basis. But, it can lead to monetary irregularities in cash flow.

So, what’s the answer? A mix of cash and accrual methods is often effective for small businesses to keep track of finances and manage cash flow.

9. Budgetary Control

The budgeting process can help businesses manage their resources effectively and adopt industry standards to create quality products or services.

Considering that small business owners do not receive an uninterrupted flow of funding primarily due to budget restrictions, controlling the budget is unnecessary to avoid unnecessary business expenses and prevent business failure.

When your business’s objectives are not aligned with your current resources, budget management tends to get out of control.

In such cases, infrastructure and operational requirements must be balanced to counteract budget restrictions.

Why Do Small Businesses Face Bookkeeping Challenges?

Small businesses face the previously discussed challenges due to the following two reasons:

Hiring an Inexperienced Bookkeeper

Accounting mistakes for small businesses might lose a lot of money and time if people without sufficient experience in your field are employed as accounting consultants.

Such consultants aren’t effective in suggesting the right budgetary control techniques and tax-saving methods. It also gets challenging to get financial insights from books as they might not be specific to your niche.

On the other hand, working with an experienced accountant and accountant who is knowledgeable in your industry will save you a lot of time, effort, and money.

You should look for a competent accountant to ensure your accounts achieve the desired goals, drive financial insights, and serve as the primary resource for everyone.

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Doing Entire Bookkeeping In-House

Small business owners dislike recording their own accounts, yet they prefer to do so. It is because most of them believe that spending money on accounting consulting is unnecessary and they can use the money somewhere else.

However, with the challenges with bookkeeping, consider bookkeeping for small businesses for better growth of the business.

A competent, expert accountant can finish the job effectively and have the necessary knowledge to discover subtle mistakes that might otherwise be missed. Also, accountants will be aware of any tax adjustments that may affect your day-to-day financial procedures.

The Solution in a Nutshell

There is no question that bookkeeping & accounting is a highly specific and specialized discipline. When small businesses utilize accounting professionals’ expert skills, they improve their financial health overall.

Small firms need to expand, and growing means managing additional business operations. Small businesses, however, should not assume complete accounting responsibilities. Instead, they should seek an accounting specialist like IBN Tech Bookkeeping service that can assist them in addressing accounting issues with care.

Although these bookkeeping & accounting challenges may vary from place to place in the USA; for example, if you have a business in Los Angeles and California, Govt. laws can vary. In such cases, outsourcing bookkeeping in the USA is also an easy solution that can identify the variations and manage accordingly, or specialized bookkeeping in Los Angeles or bookkeeping in California could be an option.

Book a call to talk to our bookkeeping experts at IBN.

Biggest Bookkeeping Challenges for Small Businesses

1. Accounts Receivable/Collections

2. Irregular Cash Flow

3. Managing Paperwork

4. Closing the Books Each Month

5. Managing Payroll

6. Tax Preparation

7. Not Being Able to Utilize Accounting Software

8. Using the Wrong Bookkeeping Methodology

9. Budgetary Control

Why Do Small Businesses Face Bookkeeping Challenges?

Hiring an Inexperienced Bookkeeper

Doing Entire Bookkeeping In-House

The Solution in a Nutshell

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