Small businesses are faced with a wide range of problems that lead to a high rate of failure. The Australian Centre for Business Growth revealed that accounting problem was one of biggest factor that contributed to this failure.
As your local accountant in Blue Mountains and greater Sydney, we can help small businesses deal with the day to day accounting challenges and provide them with the insight needed to be successful.
Some of the common small business accounting problems are explored below.
Not knowing your numbers
Small business owners tend to be experts in their product or service, but many do not have the practical financial expertise that is required to make the business run smoothly. Moreover, due to limited human resources, it is highly likely that owners are carrying the weight of the business, and are performing numerous tasks, making them too busy to be able to look at the numbers.
The lack of time also prevents business owners from being able to consistently track the numbers which lead to problems in being able to effectively record data and then use it for driving insights that can raise red flags promptly.
As your local accountant in Blue Mountains and greater Sydney, we can help identify these potential problems, that may lead to a build-up of issues that is likely to cost businesses heavily. With our monthly reporting, we can help businesses keep a track of expenses, identify trends and problem areas and recommend strategies to minimize cost and increase profit margins.
Not having a proper accounting system
Small businesses tend to be highly involved in operational aspects, and while the business may be providing an excellent product or service, many lack the expertise and knowledge to select the right business accounting systems. They do not have the long-term outlook or the insights that would help select the most suitable accounting system, leading to problems in the long run.
MYM Accounting & Business consultancy can help you identify the best accounting system suited for your business. We can help you set up your chart of accountants, direct bank fees, set up invoice templates and also recommend accounting policies and internal control needed to run the business smoothly.
Most small businesses don’t have sufficient Internal controls in place to prevent fraud and mistakes from happening. Quite often a single person is incharge of the accounting and finance functions, which could lead to fraud, errors and mistakes to happen, especially when cash is involved. We can help you implement dual signatories or dual authorization on bank accounts, payment transfers, General Entries, changing employment data and also bank details on suppliers and customer records.
Doing basic bookkeeping and compliance
Most small business owners view accounting and finance in the traditional framework – they focus only on recording items and bookkeeping with the objective being legal compliance. They use accounting to simply manage transactional data and do not realize the wealth of business information that can be extracted by assigning accounting an advisory role. Professional accountants can provide a host of services that are not limited to book-keeping. They can give pricing advice, can help with setting discount margins, and can also proactively advise on investment and cash management opportunities.
Failing to produce monthly reports
Monthly profit and loss reports are essential for small businesses, as is tracking of Key Performance Indicators, to ensure that the business is on track with milestones. With limited resources, small businesses tend to lose track of key elements of their business. With no one to report on finances and explain data to management, problems in operational aspects of the business are also highly likely. As your local accountants in Blue Mountains and greater Sydney, we can produce monthly reports that can explain the key financial aspects of the business to management, help them interpret the data and show them how the business is progressing and what likely changes in strategy are needed to improve intended outcomes.
As your local accountants in Blue Mountains and greater Sydney, we can produce monthly reports that can explain the key financial aspects of the business to management, help them interpret the data and show them how the business is progressing and what likely changes in strategy are needed to improve intended outcomes.
Business owners do not have the time to go through every single detail in their business and being able to identify accounting errors. Small accounting errors can multiply into bigger problems, which is why accounting processes must be designed in a way to have counter checks with an expert in charge of closely scrutinizing accounting documents.
Small businesses don’t have access to qualified accounting staff and hence might have to rely on incorrect data for their decisions, which can cost the business it’s survival. There is also a significant probability of data being incomplete, leading to ineffective decision-making.
Lack of cash flow management
Cash is an important asset for any business – big or small. Therefore, by not managing cash effectively there are uncertainties in not understanding and knowing when cash will be available. This leads to improper cash management, because at times, the owner will have committed to an investment, when in fact no cash is available, or cash being left idle because no investment or operational use was planned. Accountants can rectify the problem of cash mismanagement by ensuring that the business does not run out of one of its most important assets and that the asset is also put to good use to bring in returns.
No Budget or Forecast
It is important, for a vision to be achievable, that it be translated into strategy, goals, and specific numbers.
Numbers are needed to set milestones, compare performance, and plan for business scaling. A budget or forecast is a necessary aspect of business planning which takes into all the variable and fixed cost of the business. If a proper sensitivity analysis is not done, business owners may end up taking decisions which may prove fatal for the business.
Accountants can leverage the growth of small businesses in highly effective ways, and it is always advisable, when planning a new business, to allocate resources to bringing in human resources that can prove valuable in the long run. It is only through long-term oriented planning and hiring of required personnel that small businesses can survive past the initial hurdles.