From marketing your brand, finding the right vendors, and keeping your customers happy, running a small business means wearing several hats in a day. Owners of SMEs face several challenges on a daily basis, and accounting is a serious one. Accounting your business finances to manage and monitor cash flow is very important. Most importantly, you need to keep an eye on your assets, expenses, profits, and your balance sheet of debits and credits.
Although accounting is the language of financial growth and should be like music to your ears, most people find accounting dry and painstakingly tedious. But keeping your log books organized and up to date is nonnegotiably critical for your small business as tracking your numbers will show if your business is profitable, barely afloat, or in deep waters.
To emphasize further, if your business is your child and cash flow is to it, what blood circulation is to humans. Maintaining a healthy cash flow is very important and for that reason, accounting should be a priority,
Mainly, accounting entails recording financial transactions in a presentable format where they can be understood overall (accounting summary) and analyzed in detail for business reports and decision-making. This can be complex in itself if done manually or on excel sheets, but there are other common financial obstacles such as government taxes, and tallying accounts with inventory that can complicate the matters further. The majority of these problems can be solved by using good accounting software, instead of doing it all manually.
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Here are the 6 most difficult accounting challenges SME owners have to face, and how to solve them.
1. Managing cash flow
Keeping a healthy cash flow can become a big challenge for any small business. According to several studies, the biggest reason behind the businesses that fail to stay afloat is cash flow problems.
With small initial investments, many start-up owners find it difficult to put aside funds to cover recurring costs such as rentals and other monthly or annual payables while keeping the business alive.
To maintain a healthy cash flow you must:
- Analyze your bills carefully
- Efficiently track payments from customers
- Pay close attention to your monthly expenses
- Cut costs wherever possible
- Liquify any assets/equipment that you do not require anymore.
An accounting and invoicing software can help you with:
- Keeping an eye on everything as all data and records are easily available
- Save you the time consumed in recording and reconciling your transactions
- Streamline your business processes
- Help you identify growth drivers
Most cloud-based accounting programs charge you monthly or annually and offer you several services including:
- sales tracking
- budget planning
- inventory management
- financial statements
- payroll and
- tax management
The variety of features and functions can be overwhelming, but accounting software is a very helpful tool and provides actionable insights about your company. By learning the software and training your staff on it, you can cut down on the time it takes to run reports.
2. Covering unexpected expenses
Even if a business seems to be making a decent amount of profits an unexpected expense or emergency can rock of the balance sheets. For instance, without adequate insurance coverage, a single incident of workplace accident and fire hazard can easily cost your business over $1 million in terms of medical bills and potential lawsuits.
A million dollar is a huge amount for a small business but even smaller expenses, like a sudden rise in the cost of goods or a one-time government tax on all businesses in a particular area can seriously impact the bottom line.
Therefore, in managing your short-term expenses it is important to optimize your existing credit but to ensure that cost changes don’t threaten your overall liquidity, it’s also essential to monitor your long-term profitability.
3. Reporting finances
Many businesses, struggle with keeping up with the financial disclosures required by the government authorities for taxation purposes. In case your company is audited it is important to meet the reporting requirements and ensure that all financial information is being documented correctly.
To ensure you’re meeting your reporting requirements you can outsource some of the work to a professional bookkeeper or accountant who specializes in working with small businesses. In case, if you want to do it yourself, invest in easy-to-use accounting software that requires little to no technical knowledge and allows you to perform significant business operations effortlessly.
4. Regulating payroll
Managing payroll is different from hiring and managing your recruits It is a more demanding task including ensuring taxes are filed accurately, making sure all employees are paid each pay period correctly, tracking employee time off properly, and dealing with a large number of compliance issues.
All of this can easily get out of hand for minor errors such as incorrectly classifying your new employees. Mistakes can result in costly penalties. Your best bet is to either spend on a payroll expert or invest in good payroll software. Depending upon your needs a good payroll software can simplify the complex payroll software and help you keep track of your employee’s days off, allowances, incentives, and loans even if your company is operational at multiple locations.
5. Filing taxes and Working remotely
Every registered business has to pay taxes, but taking advantage of deductions can significantly reduce your bill come tax day. The coronavirus pandemic gave birth to a culture of working from home but 18 months later when the situation seemed under control many employees are not willing to return to the offices full time. But for a large number of companies, remote work has produced tax compliance risks and thus they are hesitant to embrace it permanently.
According to surveys, during the pandemic, a significant number of workers have worked outside of their home state or even country without informing their employer. Only 33% of these workers informed their employers about it. This means the failure of many businesses to withhold payroll taxes and could be in big trouble if their business is audited.
Remort work is here to stay but you should consider adopting a new remote work policy for your employees. To know for sure that you’re meeting tax requirements it is best to find ways to track your employees’ work locations.
6. Updating expenses and Analyzing your finances
Saving, recording, and logging all of your receipts and recurring expenses manually can easily become a very time-consuming task, especially if you don’t do it on regular basis.
Reconciling your books manually, without accounting software is a dry, complex, and tiering task, but lagging on keeping track can cost you dearly. Minor mistakes can lead to incorrect data records. This is why it is of grave importance to verify all your business transactions regularly. The best approach will be to build a habit of going through your accounting books at the end of each working day.
Regardless of the tool you use to generate the reports, getting hold of those numbers is only the first stage of smarter financial decisions you use, generating the numbers is only the first stage. Making sound financial decisions involves four steps:
- Calculating numbers: to generate a digestible report.
- Interpreting: what do those numbers mean?
- Analyzing: to find potential growth opportunities and the loopholes affecting your business growth.
- Advising and improving: to lead yourself to the best advice and decisions.
The good news is you no longer need to store all paper receipts in a filing cabinet and fanatically skim through them every time you need to recheck a record or process any receipt, you do not need to calculate everything and generate presentable reports manually. Good accounting software can help you go paperless and hassle-free.
Another good news is if you are a registered SME who wants to digitalize their business for better growth, but are short on money, you can apply for a government-funded grant of up to RM 5000! Learn how you can claim your SME Digitalization Grant.