What are the most typical difficulties in bookkeeping that a small business encounters?
What are some of the most challenging and rewarding aspects of running your own small business?
In the early phases of your company, you should start out on a relatively small scale, seek to establish a stable foundation, and then, and only then, should you begin to expand.
The beginning stage, which is often referred to as the development phase, features a significant number of learning and experience acquisition possibilities.
At this point in your journey, you are about to encounter the biggest number of challenges there are to offer.
In addition, if you want to be able to handle your finances in an appropriate manner, now is the time for you to brush off your bookkeeping skills and get them back into shape. This is the best moment for you to do this.
Bookkeeping may appear to be difficult work when it is addressed for the first time; nonetheless, it is vital to keep in mind that if it is properly cared for, it can make a big contribution to the overall health of your small business.
It is absolutely necessary for you, as the proprietor of a small company, to devote a specific amount of time each week to completing this errand.
The following is a summary of some of the most common problems with bookkeeping that are encountered by small businesses:
NOT BEING AWARE OF TAX CONCESSIONS
When it comes to bookkeeping, one of the most major concerns that non-profit organisations have is a lack of awareness of the tax responsibilities and regulatory limits that may lead to losses.
This is one of the most serious problems.
It is possible that the organization’s legal structure will affect whether or not it is eligible for the various tax exemptions and breaks that are made available to non-profit organisations that operate within the country.
It is vital that you keep a close watch out for any changes or revisions that may occur in the state’s tax regulations if you want to take advantage of the advantages that are available to you.
Utilizing these concessions, which may have an effect on the flow of cash into your organisation, may lead to significant cost savings for your non-profit organisation.
There are several different types of taxes that are not subject to concessions; these taxes include the income tax, the goods and services tax, the capital gains tax, the fringe benefits tax, and others.
You will need to carry out an investigation into the entitlements that are already open to your organisation before it will be able to make use of these privileges.
MANAGING THE FLOW OF CAPITAL
The failure of many organisations working towards a charitable mission to sustain a healthy financial flow is a recurrent issue that can be disruptive to the entity’s capacity to carry out its mission.
The compilation of cash flow projections and the prudent management of the company’s debts are two areas in which a bookkeeper may be of aid to a business in this regard.
They go to great lengths in order to make the necessary preparations for events in which people might take part in order to raise money for the cause.
They ensure that the focus is given to employees who contribute to an increase in cash flow and replace activities that are not productive with activities that are productive.
In addition, they ensure that activities that are not productive are replaced with activities that are fruitful.
They are able to aid in the sale of assets that are surplus to requirements in order to maintain a positive cash flow, which enables them to make a contribution to the production of additional liquid assets.
The process of generating reports that can be submitted to the board of directors whenever it is necessary is something that the bookkeepers have a lot of experience with and are highly proficient at.
RECEIVABLES AND COLLECTIONS OF MONIES DUE TO THE COMPANY
What procedures do you use, beginning with the creation of invoices and culminating with the receipt of payments?
This method can be extremely sophisticated, and as a consequence, it typically brings about additional complications and problems.
The preparation and distribution of invoices on a regular basis, preferably at the same time that the goods or services are delivered, will ensure that everything is recorded and will make it possible to have consistent cash flow.
This can be accomplished by making sure that invoices are prepared and distributed on a consistent basis.
In addition to this, you need a process that allows you to follow up on bills that are past due on a regular basis.
Far too many businesses don’t do this, and as a direct consequence of their failure to do so, they find themselves in difficult financial situations.
You will find that the majority of customers will pay relatively quickly if you establish an automated process that will automatically send out email reminders; this will leave you with the responsibility of calling only those customers who have not responded to your emails.
If you do this, you will discover that the majority of customers will pay relatively quickly. Over the course of a month, you will save a few hours as a result of this action.
If you follow these steps, you will be able to gain access to funds, which will enable you to pay your expenses, meet the financial commitments of your firm, and contribute to the growth of your organisation.
It is not unusual for the owners of small businesses, particularly when they are just getting their companies off the ground, to use their own money to pay for business expenses in order to get things moving.
This is especially common when the owners are trying to get their companies off the ground as quickly as possible.
They could also make occasional use of the funds available in the bank account associated with their firm to pay for personal items.
Even though you are the owner of the company and the money is legally yours to use however you see fit, combining your personal funds with those of the company is not a smart idea.
This is true even if you are the owner of the firm.
Because each and every transaction needs to be categorised and checked before it can be recorded into the books, it makes it more difficult for you to keep correct records.
Second, it is much simpler to lose track of your actual business expenses, which means that you face the danger of not taking advantage of favourable tax deductions.
This is due to the fact that it is much simpler to lose track of your actual business expenses.
To prevent issues like these from arising with your firm, you should get business credit cards and open a separate bank account for it.
In the event that you find yourself in need of personal funds, you should pay yourself from the company, and then deposit the money into your own personal account. In other words, in the event that you find yourself in need of personal finances, you should pay yourself from the company.
Do you need help with your bookkeeping? Bookkept is a trusted accounting and bookkeeping company in Australia. We perform cheap and quick tax returns for individuals. You can give us a call on (03) 8568 3606 or email us on [email protected].
FAILING TO RECONCILE
It is standard practice to believe that it is appropriate for a small business to feel that it is appropriate to feel that it is reasonable to compile financial reports on a quarterly or potentially even a bi-annual timetable. Having said that, there are times when this is not the case.
However, monthly financial statements are helpful in demonstrating to investors that you are meticulously keeping track of the revenues and expenses of your organisation.
Investors will be more likely to give you money if they are convinced that you are doing this.
Imagine that you are unable to prepare monthly financial reports for your company.
If this is the case, there is a chance that you have a negative account balance simply because you took care of your expenses without paying attention to your income statement, and as a result, you forgot to update it. If this is the case, there is a possibility that you have a negative account balance.
It is possible that the firm will forget about outstanding invoices that need to be paid, which could be detrimental to the credibility of your organisation.
It is possible that the contracts you have in place with the various vendors will be voided. There is a chance that the company’s expansion will come to a halt or, at the very least, severely slow down.
When was the last time you checked to make sure that the books for your firm and the bank statement for your account were in agreement with one another?
If you do not perform monthly account reconciliations, it shows that you are not staying on top of things and are falling behind.
In spite of the fact that it looks to be a hard endeavour that will consume a significant amount of your time and that you would rather avoid completing, in reality, it is rather simple.
The only thing that needs to be done for this is to compare the transactions to ensure that everything was entered correctly and that the balances are the same.
This is the only thing that needs to be done.
This will not only provide you with an accurate depiction of your current financial status, but it will also assist you in warding off potentially costly overdrafts, bounced checks, and other unwelcome shocks.
In addition, this will provide you with an accurate depiction of your current financial status.
It is important to keep in mind that the longer you wait to make apologies, the more time it will take, as well as the harder the procedure will become. The best course of action is to quickly launch into the process of reconciling your accounts as soon as you are in possession of your bank statement.
Because of this, you will be able to spot any irregularities as quickly as possible, long before they have a chance to snowball into more significant problems.
Because there are so many people who need to be paid for their services in a non-profit organisation, including personnel, suppliers, event planners, and so on, expenses are something that just can’t be avoided.
As a result, a non-profit organisation is forced to make expenditures.
In the event that management is unable to put a stop to excessive spending, the situation has the potential to escalate into an emergency situation.
By carefully analysing each transaction and cutting down on the number of actions that are not achieving the expected results, a bookkeeper has the potential to salvage the situation.
They are able to investigate the resources that are at their disposal, search for examples of waste, and ascertain when it is necessary to take the required action.
It is possible to cut operational expenses by making only minimal alterations to daily activities, such as using electricity, stationery, and paper in a more effective manner, for example. This is something that is conceivable.
TRACKING OF GRANTS
The fact that a nonprofit organisation is able to generate profits and direct those profits towards the advancement of its mission is made possible by the contributions that the organisation receives from a diverse group of donors.
Profits and revenues generated by a nonprofit organisation can be used to further the organization’s mission.
These funds are put to work in the development of brand-new initiatives, the improvement of existing projects, and the setting aside of some of them for possible applications in the future.
Nevertheless, if a volunteer does not have access to technology, then the work of keeping track of the collection of money from a number of sources might be one that is difficult to accomplish, as well as time-consuming.
A professional bookkeeping company that works with non-profit organisations will have the knowledge and the tools necessary (accounting software) to monitor the flow of funding and ensure that important funds are not overlooked. This is because such a company will have experience working with non-profit organisations.
Even though it is common for organisations that do not want to make a profit to be seen as trustworthy, this does not mean that they are immune to fraud, which can take place on a number of different levels.
Because donors place a great deal of trust in non-profit organisations, there is a possibility that the funds those organisations receive could be misappropriated by volunteers working for those organisations. It is possible that the organization’s overall economic well-being will suffer if an excessive dependence is placed on the generosity of the employees.
In order to guarantee that everything is in proper working order, charity organisations are required to adhere to the governance standard that places responsibility on members.
Therefore, the stakeholders shouldn’t place their total confidence on the volunteers but rather should hire a bookkeeper to constantly keep track of the money flowing into and leaving out of the organisation.
This will provide a more accurate representation of the organization’s financial situation.
When a nonprofit organisation takes on new staff members, the organisation is obligated to provide compensation for each of the newly hired employees.
Charities and other organisations that work for the public good have the option of handling payroll internally or delegating the work to a private company or organisation.
However, professional bookkeepers are able to perform this function, in addition to managing the finances of the business, with the assistance of software that is specifically intended for the management of payroll.
In this approach, a single person can oversee all processes connected to money without the chance of making any mistakes, and thus eliminates the need for many people.
Payroll management is a challenging process, and if you make any errors along the way, there is a chance that you will be penalised by the authorities that are in charge of managing payroll.
There is also a chance that you may not be penalised.
The administration of payroll is concerned not only with the payment of wages, but also with tax obligations, superannuation, incentives, and benefits, in addition to other aspects of human resource management.
This is because payroll administration encompasses the entire human resource management process.
When it comes to the acquisition of funds, which can originate from a broad variety of sources including government grants, contributions, debt, and so on, not-for-profit organisations face a substantial challenge that is difficult to overcome.
To be of service, the bookkeeper should provide all of the possible contributors and banks with the essential financial facts and estimates that are required for the purpose of acquiring financing.
They will examine your circumstances and advise you regarding the possibility of obtaining a loan, as well as the appropriate amount that you should borrow.
They are able to provide suggestions for the preparation of an application for government funding and can inform you about the weak links in your application in the event that it is rejected by the government agency. In addition, they are able to provide information about the eligibility requirements for the funding.
TOSSING OUT RECEIPTS
You are handed the teeny-tiny piece of paper that has a running tally of how much money you have spent whenever you make a purchase of any kind. If you are like the majority of people, as soon as you finish making a transaction, you throw the receipt away without ever looking at it.
This is a bad habit. They are not necessary in the vast majority of situations, and the only thing they accomplish is to take up space.
This way of thinking is damaging to the growth of businesses and represents a huge barrier to progress.
It is expected of you to keep a record of every purchase you make for your firm, from ink pens to office furniture, and these receipts make it possible for you to comply with this need.
You should make it a habit to keep all of your receipts for the day, the week, and the month in a location that is convenient for you to access them.
Ensure that you have a record of the reason you made the purchase as well as the method you used to pay for it.
When you go to file your taxes, having an accurate picture of your expenses will not only help you explain those expenditures, but it will also offer you with an accurate picture of those expenditures.
Keeping track of receipts and arranging them in a manner that makes sense is one of the most significant challenges that proprietors of small businesses in the present era are required to overcome.
You can resolve this issue by ensuring that all of the paperwork is organised in an acceptable manner and that it is stored in a secure location.
This is necessary since the accurate monitoring of expenditure is dependent on a huge number of aspects of accounting.
It’s possible that making use of high-quality accounting software will be of assistance in accomplishing this objective.
On terms of storage, you are able to store all of the documents offline; however, maintaining the data in the cloud is a much superior manner because of the ease of accessing and increased safety and security.
You are free to store all of the documents in a local copy.
You may either use your camera to snap a picture of the paper receipt or invoice, or you can use your scanner to scan it, and then you can either upload it to the proper account in your ledger, or you can store it on a cloud-based platform.
There are currently many various forms of cloud-based accounting software available on the market.
They can aid you in preserving the safety of your financial records while also guaranteeing that they are always easy to access.
This service is provided by them to clients.
One of the most critical obstacles that you, as the owner of a business, can face is keeping accurate records of your receipts and filing them away in the appropriate manner.
Because the accurate recording of expenses is essential to so many aspects of accounting, you need to make sure that you compile all of your receipts in an orderly fashion and store them in a safe place.
With the support of high-quality accounting software, you should be able to complete this process successfully.
When it comes to keeping data, you have the choice of doing it offline; however, storing data on the cloud is the superior option due to the enhanced convenience and safety it gives.
You have the option of storing data offline when it comes to storing data.
Take a picture of any paper bills or receipts that you have received, or scan them, and then either upload them to the corresponding transaction in your accounting ledger or store them in a cloud storage facility such as Google Drive or Dropbox.
If you have received any paper bills or receipts, take a picture of them, or scan them, and then store them.
REVIEWING THE RISK
There are risks involved in the functioning of any form of organisation, and these risks have the ability to shake the foundations of an organisation that is dedicated to humanitarian work.
The risks might range from being dependent on a small number of donors and failing to organise an acceptable number of activities to raise funds to engage in trading activities while utilising credit.
One of the most common risks is being dependent on a small number of donors.
Risk management is a practice that can help reduce the possibility of experiencing losses as a result of fraudulent business practices, unethical business practices, and other similar types of activities.
Because of this, the not-for-profit organisation needs to draught a code of conduct and explain it to the members of the staff when they are being trained.
The administration needs to be exceedingly thorough with the volunteers throughout the screening portion of the recruitment process, and they should only hire people who share the same ideas and perspectives as themselves.
CLOSING YOUR ACCOUNTS
In an ideal scenario, you would close all of your bank accounts at the end of each month in order to gather all of the important facts and metrics related to your financial situation.
If you put off doing this, you won’t be able to get valuable insights, report timely information, or make judgments that are in your best interest since you won’t be able to do any of those things.
You also run the risk of documenting transactions at an earlier time when you have already reported them externally, particularly to government organisations.
This is a particularly serious risk because it can lead to serious financial consequences.
Dealing with governmental entities exposes one to an especially high possibility of this happening.
If you close all of your accounts at the end of each and every month, you won’t have to worry about this problem. Does it look like it will be difficult? Seeing as how this is the case, it is strongly suggested that you seek the advice of an expert accountant.
You should make it a goal to close each of your bank accounts at least once each month at the very least because doing so will make it much simpler for you to access essential information and metrics connected to your personal finances.
If you put off completing this phase, you won’t be able to gather insightful and helpful information, collect correct data in a timely manner, or make significant decisions for your firm.
If you do this, you not only run the risk of documenting transactions from an earlier time period, but you also run the risk of documenting transactions that you have previously documented externally, most notably to government authorities.
If you are compelled to file tax returns, this is a very concerning issue for you.
If you close all of your bank accounts at the end of each month, you can help reduce the likelihood that something like this could occur.
WRONG UNDERSTANDING OF ACCOUNTING DATA
The purpose of accounting software is merely to facilitate your work and save you time.
Despite this, you will still need to make judgments, and you shouldn’t do so until you have fully read the reports and comprehended the financial data.
The comparison of financial reports with income statements and balance sheets is an important part of the data interpretation process.
This is frequently difficult and perplexing, and as a result, employing the services of an accounting services provider may very well be the best answer.
After acquiring a comprehensive understanding of their company’s accounting information, owners of small businesses ought to think about shifting their attention to the results of their financial choices as they unfold over time.
After reviewing the company’s financial records, making judgments with a short-term focus will not result in any long-term benefits for your company.
GOING IT ALONE TOO LONG
Your ultimate objective is to expand your company, which requires you to invest a significant amount of your time and effort into the endeavour.
You put in long hours, take almost no time off, and, in general, you are obsessed with every little aspect of the job.
Even while there is nothing intrinsically wrong with it, if you aren’t focusing on the correct things, you will actually cause your company’s growth to come to a standstill.
For instance, if you’re preoccupied with keeping the books, you probably aren’t putting much effort into developing new business strategies.
When your company expands, the bookkeeping activities you need to complete become more difficult, using even more of your valuable time. Consider employing a bookkeeper sooner rather than later so that you don’t have to spend your time in the back office going through receipts, doing data entry, and attempting to keep everything straight.
It should be possible for an accountant to successfully manage the transition into retirement by selling their public accounting practice as part of their overall transition strategy.
Knowledge of both the financial and business aspects of the industry. Experience in negotiating is quite valuable. Strong people skills.
However, research from Bentley’s The Voice of Australian Business Survey reveals that accounting firms are among the 43% of small businesses that do not currently have an acceptable succession plan. This is despite the fact that accountants are often quite good at advising their own clients.
The process of selling a public practice has gotten more difficult over the past decade; therefore, careful planning and ensuring that all of your choices are taken into consideration will have a considerable impact on the final result.
CPA Australia emphasises the significance of presenting a firm as an attractive investment opportunity and establishing its practice profile in its succession planning toolkit, which is intended to assist accountants in preparing for the possibility of a sale of their business.
This should include the company’s history, team structure, vision, and competitive advantages; specifics of all services and products being provided to clients, as well as whether or not the company has referral sources; an analysis of the company’s client base; a rundown on the company’s marketing plans; and an overview of the company’s strengths in human resources and technology.
How would you describe the experience of running your own small business?
During the beginning stages of your firm, you should begin on a modest scale, look for solid footing, and only after that should you expand.
The initial stage, which is also known as the development phase, comes with a lot of opportunities to gain knowledge and experience.
You are about to face the greatest number of obstacles at this juncture in your journey.
In addition, if you want to be able to properly handle your finances, now is the time for you to dust up your bookkeeping abilities and get them back in shape.
When initially approached, bookkeeping may appear to be a challenging task; nonetheless, it is important to keep in mind that if it is properly cared for, it can make a significant contribution to the well-being of your small business as a whole.
As the owner of a small business, it is imperative that you commit a certain amount of time each week to doing this errand.
The following is a list of some of the most typical bookkeeping issues that small businesses face: