The Biggest Pain Points When Keeping Your Own Books
Keeping accurate financial records is one of the most important aspects of running a business. Without it, you can’t possibly know how solvent your business is and how well you’re managing your finances.
Accurate record-keeping helps to track cash flow, monitor expenses, and ensure compliance with tax laws. However, for many small business owners, accounting can be a daunting task, especially if they have had no official training in managing finances. From understanding what must be tracked to managing tax requirements, there are several issues with accounting that can arise when keeping your own books.
In this article, we’re going to pinpoint the problems that business owners like you can easily face when attempting to deal with the books yourself. And we’ll suggest a highly effective solution that may be a lot more affordable than you think.
Accurate Record Keeping
Accurate record-keeping is a vital foundation for any business. Without accurate financial records, you can’t possibly understand how much cash flow you have or how much debt you owe. This makes it difficult or even impossible to understand which direction to take your business.
The big problem is that accurate bookkeeping is complex and consists of many tasks and time-sensitive data. And the current accounting issues that small business owners face here are numerous.
Understanding What Must Be Tracked and When
If you don’t have a financial background, one of the biggest problems in accounting yourself is knowing what must be tracked and when.
For example, businesses must track income, expenses, assets, liabilities, and equity. However, there are also specific transactions that must be recorded, such as depreciation, amortization, and inventory adjustments.
The solution to this accounting issue is to establish a clear system for tracking financial transactions. Using accounting software is often the preferred method since it automates many of the tasks and therefore is far less time-consuming.
The other method is to create a manual system using spreadsheets. However, manual record-keeping is a lot more likely to experience errors.
If you plan to do the financial tracking yourself, we highly recommend educating yourself on the specific financial requirements of your business and taking the time to understand what you need to track.
Accurate Business Analysis
Accurate business analysis is what’s required if you want to know the financial health of your business. This involves accurately balancing accounts and tracking expenses, as well as obtaining a clear understanding of your finances on a regular basis.
Without this analysis, you’re left fumbling in the dark with no way of knowing where your business stands financially.
Accurately Balancing Accounts and Tracking Expenses
Accurate business analysis is correctly balancing accounts and tracking expenses.
Essentially, balancing accounts ensures that all financial transactions are recorded correctly and that all accounts are reconciled on a regular basis. But in order to do this, you must have the required expertise. It’s not necessarily a simple task, especially when the accounts don’t balance, and you have to find out why.
Maintaining a regular schedule for reconciling accounts and tracking expenses is paramount. Again, whether you choose to do this manually or use accounting software is up to you.
You must know, however, that this can be a time-consuming task and also requires knowledge of what actually to do with the information itself. Okay, so the numbers look good, but what does that mean for your business and for the following weeks or months?
Additionally, keeping detailed records of all financial transactions, including receipts and invoices, is essential. And we don’t mean piling them up in a forgotten drawer somewhere. All these pieces of paper must be sorted and stored correctly as well as scanned so you have a digital copy.
Obtaining a Clear Understanding of Your Finances on a Regular Basis
Reviewing financial reports, such as profit and loss statements, balance sheets, and cash flow statements allows you to gain a clear overview of your current financial situation. This information is also used for forecasting and enables you to make decisions for your business.
To the untrained eye, these numbers may not make sense. And this is one of the biggest accounting issues today. Just because the numbers look kinda good, it doesn’t mean you can go on a spending spree. Unfortunately, many business owners fall into this trap and wind up in debt a few months down the line.
Reviewing your financial reports should be reviewed regularly, generally on a monthly, quarterly, or annual basis, depending on the needs of your business. From the results, you should then draw up a plan of action. Whether it’s to draw down debt, increase inventory, or something else, your decisions must be backed up by sound analysis of the data.
Sounds difficult?
Well, yes, it is. And this is why this kind of task is generally carried out by a qualified accountant or bookkeeper. Remember, these individuals spent years studying their craft, so you don’t have to. And if you are experiencing these issues in accounting, it may just be the right time to get one on board.
Managing Tax Requirements
Inaccurate tax handling is one of the major accounting issues in business. From determining which types of taxes you need to pay to filing deadlines and keeping track of deductions. It’s a lot of work to fulfill in a short space of time.
Understand Which Types of Taxes You Need To Pay, and the Filing Deadlines
One of the biggest challenges of managing tax requirements is understanding which types of taxes you need to pay in the first place. Common tax obligations include federal income tax, state income tax, payroll tax, and sales tax.
All individuals, whether business owners or not, should educate themselves on the specific tax requirements. We know it’s a boring and difficult subject, but a little knowledge can stretch a long way and, more importantly, help you avoid a fine or confrontation with the IRS.
We believe it’s always beneficial to consult with a tax professional. What many business owners miss is the potential savings they can make. There’s always a more efficient way of (legally) dealing with taxes, and often there are tax breaks available too. This is something an accountant will have full knowledge of, so paying for their expertise can actually save you a lot more than you realize.
Keeping Track of Deductions
A big aspect of managing tax requirements is keeping track of deductions. Deductions can include business expenses, such as office supplies, travel expenses, and marketing costs.
Offsetting these expenses saves you money, but unless you keep accurate records of deductions, you won’t be able to take advantage of this.
Keeping detailed records of all business expenses is the answer here. Additionally, it’s important to understand the specific requirements for each deduction and to consult with a tax professional if you have any questions.
Timely Updates
Deadlines exist in all areas of business, and timely updates are essential for accurate record-keeping and tax compliance. Therefore, you must make sure that all financial transactions are recorded on time to avoid penalties or fines from the IRS.
Make Sure All Financial Transactions Are Recorded on Time To Avoid Penalties or Fines From the IRS
One of the biggest accounting issues is the lack of timely updates. This includes making sure all financial transactions are recorded on time as well as making timely tax payments.
For this, you need a regular schedule for recording financial transactions and making tax payments. Learn when the deadlines for filing taxes are – they change slightly from year to year and start preparing yourself well ahead of the date.
If you have everything in order when the deadline rolls around, fulfilling your obligations will be painless and help you avoid any penalties.
Cost Management
Cost management is essential for ensuring your business is running at an optimal level of profitability, but it is one of the many areas that business owners fail to deal with properly. Cost management involves monitoring expenses vs. income and making adjustments as needed.
Monitor Expenses vs. Income To Ensure Your Business Is Running at an Optimal Level of Profitability
Monitoring expenses vs. income involves analyzing financial reports, such as profit and loss statements, and making adjustments to expenses as needed. This information is vital for achieving and maintaining a profitable business, which is what we all want, right?
However, it’s tricky to decipher all the data to actually understand how profitable your business is and what you must do in order to improve it. For example, one of the many aspects of analyzing financial data is understanding the impact of each expense on the profitability of your business.
How do you even begin to do this? As you’ve probably guessed, this is another area where expertise matters. A qualified accountant will be able to quickly tell you which areas are doing well and what needs to be improved.
Automation
Automation is everywhere right now. This is clever software that automatically takes care of those mundane and repetitive tasks you’d rather not do. More importantly, it’s way more accurate than the human eye and drastically reduces the likelihood of an error occurring.
Software To Help Streamline Bookkeeping Processes and Reduce Administrative Burden
One of the biggest challenges of automation is selecting the right software to meet the needs of your business. Never mind the fact that once you’ve chosen a brand of software to use, you must learn how to use it properly.
This is as time-consuming as it sounds. And if you set the automation process up incorrectly, it’s going to cause you an even bigger headache.
Thankfully, there are basic software applications out there, but these have the problem of not meeting your needs as your business expands and grows. Often, businesses outgrow their accounting software, so it becomes necessary to upgrade it, which means you have to start the entire process again and migrate all your data over to the new system.
Developing a Strategic Plan for Long-Term Financial Goals
Developing a strategic plan for long-term financial goals is essential for the success of your business. Setting financial goals, such as increasing revenue or reducing expenses, and developing a plan to achieve those goals is crucial if you want to grow.
Establishing a clear vision for your business and setting specific, measurable financial goals is the solution here, but here’s the catch, you need accurate financial data to do this.
It’s equally important to develop a plan on how you intend to achieve those goals, including identifying specific actions, timelines, and deliverables. Again, without sound financial knowledge, this strategic planning can be extremely difficult for businesses to carry out.
How To Know When It’s Time To Hire a Professional
If you can recognize one or more of these current issues in accounting, then it’s time to get some help on board. You’re a business owner with a vision for your product and service, not a financial professional with the education to back it up.
However, we fully understand that hiring a full-time accountant is beyond the reach of many small and medium-sized businesses. Furthermore, it may not even be necessary for you to have someone on the books full-time.
Therefore, EvolveCFO has addressed these common accounting problems by providing qualified accountants on a virtual basis. Yes, they’re real people, but they work remotely. This means you don’t have to stress about finding office space for them.
Better still, all our EvolveCFO accountants are well-versed in professional cloud-based accounting software, which automates many tasks and saves you even more time and money.
We have flexible pricing plans and a range of add-on services, so you only pay for what you actually need. Need to scale up the service? Sure thing. Want to dial it back a notch? No problem.
This structure has made qualified accountants accessible to all businesses. We understand how vital this is for allowing businesses to become successful, and we want the same for you.
Get in touch with EvolveCFO today and banish those pain points permanently!
To learn more about what we do, or to request a quote, contact us at hello@finvisor.com or 415-416-6682. We’re here to help you navigate deferred revenue journal entries so you can make the most of your assets!
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*
- Last Modified
- April 8, 2024
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