Building a business from scratch is rewarding, but entrepreneurship comes with many responsibilities. Financial responsibilities, specifically, can be tough to deal with on your own. Identifying and learning how to deal with the five common headaches in small business bookkeeping is perhaps one of the first things you should do.
There are many aspects to bookkeeping, so today, we’ll focus on the most common problems and the reliable ways to avoid them.
Many small business owners don’t fully comprehend how to manage their finances. That’s understandable as not every entrepreneur has a background in money management.
However, lack of familiarity leads many business owners to put off or altogether avoid dealing with financial statements. Perhaps you’ve also made this mistake.
Say you don’t review your financial statements every month. Maybe you trust that having your accountant or bookkeeper look over them is enough.
While a good bookkeeper or accountant is necessary, you shouldn’t make the mistake of leaving everything to them.
By not reading and understanding your financial statements, you’re likely missing out on great opportunities to improve your company’s financial situation.
In worst-case scenarios, not staying on top of financial statements can spell financial disaster for your small business.
Keeping track of your records and understanding numbers might be annoying or even hard, but they reveal vital information on how you can improve, among other things:
Sure, looking through financial statements and making sense of the numbers can be one of the biggest headaches for small business owners. But its difficulty doesn’t justify a lack of interest and consistency.
You don’t have to deal with this alone if you’re not confident. Guidance from a CPA with experience in your field can be invaluable.
Enlist the assistance of knowledgeable third-party bookkeeping services. Swyft Books can help your business by:
Don’t let this common headache overwhelm your leadership.
For many small business owners, dealing with backlogs of financial statements is mundane. How often have you felt like you’re always playing catch-up?
You’re not the only one. This issue is among the five common headaches in small business bookkeeping due for several reasons:
Of course, a general lack of business finance knowledge is always a significant contributor to financial backlogs.
Dealing with these issues can be challenging because the difficulty of tasks such as making calculations and sorting through historical transactions compounds with every new stack of financial documents.
You end up doing a lot of guesswork or even rushing through tasks hoping to catch up, more often than not.
That’s no way to run a sustainable, successful business.
Backlogs occur when you’re unsure what you’re doing. Luckily you can avoid these situations if you follow a few simple guidelines:
None of this means that you can’t solve backlog issues on your own if they happen. But a reliable, experienced bookkeeper or online bookkeeping service can help you do that.
Sometimes you can look at your numbers religiously and still have no clue what move to make. When that happens, you usually have two choices.
You can either seek guidance or make a decision with the information you comprehend.
The latter seems to be a popular go-to move for many entrepreneurs. Why? The business can’t move forward if the leader stalls the decision-making process.
However, some decisions you make lead to great results, and others don’t. Even if you somehow manage to make the right decision half the time, you’re still left in a perpetual state of guessing.
Every financial decision you make can feel like flipping a coin.
This happens because many small business owners don’t learn how to analyze their numbers. But while you do need some understanding, you don’t have to become a financial expert.
The headache of doing too much guesswork can also come down to another issue — you’re not working with the right people.
Every industry is different — from products and services provided to tax implications to how money moves. This means that not just any bookkeeper can give you valuable advice and guidance.
Sure, someone might be able to keep track of your records, calculate taxes, and even file documents for you. But that doesn’t mean that a bookkeeper with experience in the medical field would be just as great for a business operating in agriculture.
Each industry has legislation around diverse topics such as taxes, accepted deductions, expenses, and loans.
You must work with someone who knows your industry inside-out to make more informed financial and business decisions. That’s how you prevent perpetual guesswork.
If you’re a small business owner just starting, you have a lot to learn. There’s nothing wrong with that. Everyone enters into entrepreneurship at different levels of experience and knowledge.
Managing business and personal expenses is one of the top five common headaches in small business bookkeeping.
You might think that using your personal credit card for a business expense isn’t a big deal if you forget to use the business card.
However, consistent use of your personal card can make a mess of your financial records. That’s one of the reasons your bookkeeping might be keeping you up at night.
This also applies to the reverse situation. You might be tempted to pass off a personal purchase as a business expense.
These actions make your bookkeeping murkier and harder to manage and leave you vulnerable to legal action if not appropriately handled.
You should strive to manage business finances from the business’ dedicated bank account only to prevent this.
Always have a business credit card to use for company expenses. Maybe even keep some cash in your business checking account so that you can cover unexpected costs like client lunches.
The other great thing you can do is get a bookkeeper who knows your business and industry. They’ll be able to clarify what you can and can’t pay for with company money.
Every business owner wants to maximize their deductions. The more you can deduct, the less you have to pay in income tax.
Do it right, and you can increase your business’s bottom line and profitability.
However, you can’t deduct everything. Some things aren’t allowed, and you must justify every deductible claim you make.
You should make sure to get a receipt for every payment you make. They might pile up and be a little annoying to sort and categorize, but they’re essential.
Depending on your industry, the type of deduction, and other factors, you might even have to hold on to them for more than a decade.
Why is managing your receipts so troublesome?
For one, not all of them are digital, and losing tiny pieces of paper is easy. Secondly — and this is perhaps the most critical aspect — audits often ask for receipts.
If you made a deduction and can’t back it up with proof, two things happen:
Having detailed records of all your business expenses is crucial. Holding on to receipts is the only way to back up any claims you make on your tax filings.
This can create an even bigger headache if you’re not experienced with recordkeeping.
One thing you can start doing right now is taking photos of receipts. It’s much harder to lose them from a secured digital storage space than from a filing cabinet folder.
In addition, you can benefit from industry-specific bookkeeping services to better understand what’s deductible and what receipts you should keep, among other critical pieces of information.
You don’t want to lose vital receipts, but you shouldn’t have to deal with an overflow of expense records either.
Understanding the five common headaches in small business bookkeeping should give you more insight into why it’s crucial to treat this area of your business with the utmost care and professionalism.
Bookkeeping headaches develop when you’re doing something wrong and can lead to wasted time, missed opportunities, lost profits, and significant fines during audits.
The good news is that you don’t have to be a financial expert to avoid bookkeeping mistakes. Working with a good bookkeeper is often the answer to most problems.
Swyft Books offers bookkeeping services that fit your business, so you don’t have to be thoroughly versed in the financial intricacies of your field. Leverage our expert guidance to make better financial and business decisions. Get your free trial today!