Is accounting the reason you started your small business? Is accounting one of your strong suits? For most business owners, the answer to these two questions is undoubtedly “no.”
The problem isn’t that you don’t enjoy accounting and aren’t knowledgeable about it. But if we asked whether you have insight into the financial health of your business, you may answer again “no.”
Impactful accounting is about more than recording numbers and producing reports. Accounting that shapes your business and helps you improve provides insight into what these numbers mean. From a high level, this is the biggest accounting issue you may have.
If you don’t understand how your company is performing, you won’t know what tweaks to make to improve and take home more of your hard-earned money.
The 5 Accounting Issues Hurting Your Small Business
Each business is unique and has its own challenges, but many companies suffer from these same five accounting issues:
- Using bank statements as a source of recordsHow much money you have in your bank account is not an indication of the financial health of your business. Bank deposits are not revenues. Many business owners rely on bank statements as a source of insight into their company’s well being, but they don’t have true knowledge of their real revenues.
Did you perform work or sell a product you’ve yet to be paid for? Do you have expenses you’ve yet to pay that are incurring interest? You wouldn’t know by looking into your bank statement. - Not keeping accurate and/or up-to-date recordsWithout records that provide accurate insight into the health of your company today, how could you appropriately adjust your spending? Accurate, up-to-date records are an absolute necessity. They give you or your accountant a clear picture into your company’s strengths and weaknesses.
For instance, do you know if your cost of goods is too high? Could you increase your profit? Are you managing your inventory properly? There’s no way to know if your records aren’t current and accurate.
Some of your responsibilities to ensure accurate records include: - Noting what expense a check is for
- Tracking receipts and correctly categorizing the expenses (which gives you the ability to write off expenses for tax purposes)
- Recording how much payroll tax to set aside when paying your employees
- Relying solely on QuickBooks to manage your accountingLike any accounting software, QuickBooks is a great tool to generate reports (as long as the information you’re entering into it is accurate). However, QuickBooks only produces numbers on a page. It doesn’t help you interpret and analyze those numbers. What’s important is what the numbers mean and how to improve them. Are you able to make business decisions based on QuickBooks?
An accountant should be able to provide such information. However, in some cases, an accountant may have so many clients that they simply use the reports to file returns by their deadlines. If you’re not getting advice to improve your business, you’re hurting your company’s potential. - You don’t know your gross or net profitUnder the umbrella of some of the points above, you don’t understand how to ensure that your costs are in line with your prices and whether you’re making enough profit for all your hard work. Of course, understanding your gross profit and bottom-line income is dependent on having sound records and insight into your numbers.
- You’re not accounting for all of your cash coming in and going outSome owners do a poor job of collecting customer payments. Other business owners don’t have a good system in place to pay their vendors and take advantage of incentives to pay expenses earlier (for instance, a 2% discount if paid within 10 days).
Whether you fall into the first or second category, or have a different issue altogether, without knowledge of what cash is coming and going you won’t be able to ensure a healthy cash flow.
Why Do You Do It? What Must You Do?
Many small business owners simply don’t know that they have any accounting issues. They do everything their accountant asks of them. Many other owners know they have a problem, but because it stresses them out, they choose not to think about it.
If you’re one of these business owners, you need help, and help is available. With the right partner giving you plenty of their time and focus, offering specific advice and helping you understand your priorities, you won’t have to worry.
If you’re one of these business owners, don’t wait until you have a problem or it becomes more painful. Talk to an advisor who can help.