All About How Business Owners Solve Bookkeeping Troubles
How do business owners solve bookkeeping troubles?
Bookkeeping challenges may be incredibly impactful for small businesses, which often do not have the expertise or resources of larger enterprises. Every dollar matters for a small business, but with haphazard accounting, inadequate software, tax issues, and other troubles, bad bookkeeping can shutter a small business’s success. Understanding what problems to watch for and how to solve them can make all the difference.
How are bookkeeping problems costing you money?
Bookkeeping, when done right, keeps finances stable and predictable. Poor information leads to inaccurate financial statements, which leads to mistakes. The same holds for inadvertently misinterpreting data or making a big tax filing mistake. Without good bookkeeping practices, your small business might face lost revenue, lost potential, and even penalties.
So, while small businesses may be inclined to do their bookkeeping to save money, bad bookkeeping can cost more in the long run.
What are some common bookkeeping problems businesses face?
Not keeping track of your expenses
If you are not keeping track of your expenses, you may think your small business has more cash flow available than it does. You could overextend your finances without realizing the money has already been spoken for. That means you will be late on other payments and potentially incur late or overdraft fees.
This is also putting your company in a bad situation if an unexpected expense pops up, and because your costs are not recorded properly, you don’t have the funds to deal with it. If funds are tight, you need to know where every penny is. Even if you aren’t operating with marginal profits, you still need to keep up with expenses to survive and thrive as a business.
Not recording income and expenses correctly
Every aspect of your business relies on the financial department in some way, even if the financial department is just one person. Errors in your financial records, including income and expenses, can snowball into a significant problem. You can lose invoices that need to be paid, develop a bad reputation with suppliers and customers, and ultimately, stop your business’s growth.
Without accurate income and expense records, you don’t know how financially healthy your business is.
Failing to file taxes on time.
To file taxes on time and accurately, your business must have all its financial records in place. When your bookkeeping is done well, filing taxes is easy! But when your bookkeeping is in rough shape, you may miss tax deadlines while you scramble to get your records in order. You could make mistakes while filing or face costly penalties for late filing or even an IRS audit.
Not having an appropriate bookkeeping system in place
Consistency and capability are critical for business bookkeeping. You need to have a strong system in place and ensure that it is capable of meeting your needs while also ensuring it is used every time, as intended. A haphazard, slopping bookkeeping system leads to all the problems mentioned above. Proper bookkeeping takes work, strategy, and investment, all of which pay off with a better financial picture for your company.
How to solve bookkeeping troubles
If you recognize your business in the poor bookkeeping practices listed or are concerned about your financial longevity, it’s time to correct your bookkeeping troubles. There are many solutions to bookkeeping problems. The key is to find an approach that works for your company and your industry to maximize your company’s financial health and success.
Bookkeeping systems should be tailored to the needs of the business
Much like your small business faces different challenges than a large enterprise, the strategies that work for a multinational company won’t work well for yours.
Instead of hiring a full accounting department, your business might look at setting up accounting software, hiring a bookkeeper or accountant, or doing a combination of both.
Use accounting software to keep track of your expenses and income
Accounting software organizes your finances so you can manage them on your own or hand them off to a bookkeeper or accountant as needed. Whether you manage money-related manners in-house or get help, the software handles everything accurately and efficiently.
Accounting software can typically be integrated with other programs you use and data sources like your business bank account. That means you can spend less time on redundant data entry while benefiting from more accurate records. Accounting software also helps quite a bit with tax time, giving you the details you need at your fingertips with the accuracy required to avoid penalties or problems.
Reconcile your bank statements regularly to ensure accuracy
Reconciling your bank accounts means ensuring that the money you spend or earn matches the money entering or leaving your business accounts on paper. For optimal business financial health, it is important to reconcile these accounts regularly, such as monthly or quarterly. It needs to be done on time and consistently so you can catch any mistakes or issues before they become a more significant problem.
You can reconcile your accounts by comparing documents, such as credit card receipts, with what is recorded.
Have an accountant review your books periodically to catch any mistakes
Keeping up with and reviewing your own books is critical, but sometimes having outside help is the key to finding mistakes you have missed. Accounting and bookkeeping are essential parts of business operations. For accountants, that is all they do, so they will be laser-focused on ensuring your financial information is accurate.
An accountant may look for areas like misapplied payments, concerning trends like a rising debt-to-credit ratio, and of course, balance sheets that don’t balance. They will look at your income statement alongside your cash flow. Ultimately, what they are doing is taking a second look at everything you have done with the eye of an expert.
An accountant is skilled and educated in finding patterns that show where your business is doing well financially and where you need to pay closer attention. They can work with you to help the numbers make sense, driving decisions that will solve future bookkeeping problems.
Keep up with changes in tax laws to stay compliant
As we have noted several times, tax law is very important to understand and follow. The problem is that tax laws change constantly, with additions, removals, and alterations. It can be hard to keep up with the complexity of tax laws. Even though it can be a challenge, your business has to do so to stay in compliance.
The IRS shares and summarizes tax changes, so be sure to keep on top of the information they are giving small businesses. You will need to do the same with state governments, which also change tax laws in a way that can impact your business. If you use business software to manage your taxes, make sure that it is up to date with any changes, so you do not have to make adjustments manually.
Your accountant or bookkeeper can be a big help here, as it is their job to know the ins and outs of taxes. If you are going to work with an accountant every so often to review your books and catch mistakes, consider bringing them in during tax season as well. The savings that come from being compliant with taxes may be worth the extra investment!
Stay organized and keep good records of transactions
Ultimately, your company needs to commit to being organized with your financial information. Even the smallest business has a lot of financial responsibility, and if your goal is to grow, that responsibility grows too. Keeping good records is the foundation for bookkeeping success, so do what it takes to keep your business in order.
Why is bookkeeping software so important?
Most small businesses are unable to hire a full accounting or bookkeeping department. Still, they need to manage finances wisely. For business owners and workers who already share a lot of tasks, such as administration, ordering, sales, and customer service, adding finances can be overwhelming.
Bookkeeping is one of the most important jobs someone can do within a small business. Bookkeeping software is an easy-to-use, often automated accounting measure that keeps your business moving in the right direction without wasting your precious time or resources.
What to look for in a bookkeeping software
Bookkeeping software is generally all about storing data like revenue and expense logs, with features that make it better than just using a spreadsheet. Accounting software may have more features like analytics and analysis so you can make decisions based on your data.
Look for secure, up-to-date software with provisions for updates as tax changes occur. You may want a system that syncs with your business bank account and credit cards so that you do not have to manually input expenses and credits. Integrations with other systems like your point of sale vendor may be useful.
Ultimately, you need bookkeeping software that people within your small business will use, so make sure that it is user-friendly. You may want software that is accessible on the cloud, so you can access it wherever business takes you. If your goal is to grow, consider how the software will scale up with a larger business and if you can add more users.
What is the best way to hire a professional bookkeeper?
The benefits of having a bookkeeper
A professional bookkeeper saves you time, giving you back your own resources to build your business whether that is product development or customer service.
They create the processes needed to keep your finances running smoothly, ensuring that nothing goes unchecked, such as scheduling payments or ensuring that your own customers are paying on time.
Because they handle the day-to-day finances, your cash flow will no longer be a mystery, so you can make better decisions.
You will enjoy a smoother tax season, with optimized filings and the knowledge that your information is solid in the event of an audit.
Ultimately, with a bookkeeper, your business will be in great hands, financially, so you can focus on everything else.
What to look for when hiring a bookkeeper
Look for a bookkeeper who is experienced within your industry and/or your company size. A bookkeeper for a Fortune 500 business is probably highly skilled but may not be the best fit for your sole proprietorship! Ask about previous work they have done, and seek references so you can get a feel for their reputation.
Ask them how they will communicate with you and make sure that the answer is something that suits your needs as a business owner. Do they provide phone support, work over email, or meet in person? Will their hours of availability be sufficient for your requirements?
Finally, ensure that what you’re signing on for meets your needs and your budget. You may not need a full-time accountant for your small business — in fact, you likely don’t. However, you may not want to sign up for an annual contract and might prefer monthly payments.
There is an accounting service out there that works for everyone. Ask your potential bookkeeper how their services are structured.
How to work with a bookkeeper
It’s essential to communicate with your bookkeeper. Do so before hiring them, to ensure that they are a good fit, and while they work with you.
Once you have chosen the bookkeeper that suits your needs, you will sign a contract with them. Then, based on your agreement, you will use a system to share your financial information with your bookkeeper. They will give you an economic outlook in return, in the increments and format you have agreed upon, so you can know that your business is doing well.