Posted on: 7 March 2023Share
Bookkeeping issues can cause major problems for businesses of all sizes. Many small businesses, though, have issues because they are new or don't seem to have big needs. Good bookkeeping can be the difference between turning a profit and filing for bankruptcy, though. You want to identify these five problems to ensure that your operation will run at its best.
Failing to Segregate Accounts
Especially if a business started out as a hobby or just one person doing something, there is often a mingling of money in personal and company accounts. There are some situations for sole proprietorships where this is perfectly fine.
However, as an operation becomes a true business, particularly one with employees, it needs to segregate the money. Otherwise, it can be hard to track what is personal spending versus business expenses. In the best scenario, trying to determine if your business is actually running a profit becomes impossible. In the worst scenario, it could be a red flag that triggers a tax audit.
A business owner should check at least once a quarter that their accounting makes sense compared to other financial information on hand. You want to know, for example, that the total remaining in your company's checking account corresponds with what your books say. If it doesn't, then you need to reconcile your small business bookkeeping. This involves hunting down where the error is and then correcting the numbers. If the bank made a mistake, then you'll have to notify them.
Poorly Tracking Receivables and Payables
You need to know at any given time who owes you how much. These are receivables. Likewise, you need to know how much money you owe to other parties. These are payables. Keeping tabs on both is critical to avoiding a money crunch or collection notice. If someone can't pay you, then you may also have to put a bill out for collection.
Insufficient Software Integration
If your business isn't already using bookkeeping software, expect a professional to tell you to start doing so. Even if your business is using software, you may also need to integrate it. For example, you'll probably want your point-of-sale system to send data automatically to your accounting software. Similarly, you may need to integrate inventory management and payroll processing.
No Business Plan
A business needs to have a financial plan. This plan needs to make sense according to the bookkeeping. If your plan and numbers align, you'll have an easier time making decisions about hiring, leasing equipment, buying property, and growing your business.
Reach out to a company that offers small business bookkeeping services to learn more.