Accounting for Small Business Owners: How to Solve the Most Common Accounting Challenges
How many small business owners do you know that love working with numbers? Chances are you won't find money. Accounting for small business owners doesn't have to be a monumental task.
Here's a look at some of the challenges you can solve while crunching the numbers for your business.
We all know how stressful it can be managing a small business. Between tracking down clients and managing employees, you can quickly lose track of time in the day.
It is extremely important that you keep your business as organized as possible. When you have loose practices for your business accounting, it can lead to mistakes and even potential penalties down the line.
If possible, create separate binders for your clients, expenses, vendors and employees. You can even take it a step further and create folders within the binders if you have different sub-categories.
You can also use the same setup if you will keep track of your finances digitally, by installing folders and subfolders onto your main hard drive. This will make tracking invoices that much easier for your business.
The organization aspects should also include how the day to day tasks are handled by your employees. If every day is random and there isn't a core sense of direction for the business then your team will not be as productive as they can be.
If you can't stay organized then your business will be doomed to fail so make it your top priority.
If your small business has a handful of employees that you pay wages to, then it is highly recommended that you find payroll management software that can suit your needs.
This falls in line with staying organized, as you will want to keep exact records of the hours worked by your team members. Failure to manage payroll effectively could result in checks with the wrong amount/information on them.
It can also lead to disgruntled employees who may become frustrated with constantly coming to you because their check is missing hours.
Avoid these situations at all costs by finding a payroll software that will suit your business needs.
Small business accounting issues can arise if you are not thorough when looking over your tax information. You will need to file your business taxes every year to avoid penalties from the IRS.
Speaking to a tax accountant is a smart idea, as small business taxes may vary from state to state. You may also need to adhere to certain requirements based on how much revenue your business has generated, the structure of your business, and more.
Failure to understand and abide by the tax laws in your area could result in fines from the IRS, as well as potential penalties on your business deductions.
If you aren't confident in your skills to do the taxes for your business hire someone to file for you. A small purchase of services can result in thousands of dollars saved from a few costly mistakes.
Another tough accounting challenge all small businesses face is generating enough profit to cover expenses. Over half of all small businesses fail in the first year.
Part of the reason is a lack of steady revenue coming in. When your business officially opens up to the public, it would be a smart idea to have a few potential clients waiting in the wings.
For example, if you were opening up a hospitality consulting firm, it would be wise to use your connections in the industry to reach out potential hotels in need of help.
Simply going from property to property touting your skills in hotel management isn't a smart idea. If you have a few clients lined up it can keep steady revenue coming into the business and help your team avoid any dry spells.
Turning one time clients into repeat customers is the key to success, and if your team members aren't able to consistently secure clients you could become another failed statistic.
Tracking Your Expenses
Keeping track of your expenses isn't just about being organized. While that helps a lot in the initial stages of your business, it is also important to monitor what you are spending money on.
If you are spending more money than you are bringing in you will quickly find your business in dire times. This may lead to cutting expenses where ever possible, and may result in layoffs to save wages.
Purchasing good bookkeeping software is a great way to keep track of your financial records, and it may help you find more opportunities to cut down costs of items (shopping at a bulk store such as Sams Club versus going through an expensive vendor).
Reconciling the Books
You should close your books on a regular basis. Ideally it is done on a weekly or daily basis, but even a monthly reconciliation would work. It could be the difference between your business interpreting it's data correctly, or even a dreaded IRS tax audit.
Once you have done it a few times it will become second nature to you, so get started now and save yourself the hassle later.
Accounting For Small Business Owners Made Simple
So now that we have looked at some of the best tips regarding accounting for small business owners, which ones stand out to you?
Are you going to create an effective system to keep track of your finances? Or will you hire an accountant to take care of everything during tax time. Don't forget to follow our blog for more information about running a small business!