Biggest Accounting Challenges Faced by Small Businesses

Accounting is one of the major things many small businesses struggle with. Whether if you are an entrepreneur managing everything by yourself, or a business owner with a hired accountant, you are probably familiar with how challenging the ever-changing regulations can be. So, in order to help you make the best accounting decision for your small enterprise, we prepared a list of the 4 most common accounting pain points and tips on how you can solve them:

1. Taxes

With businesses often closing down due to CRA or IRS penalties, it is no wonder entrepreneurs don’t take tax time lightly. If you don’t have any prior tax regulation experience, complying with all the legal requirements can be a challenge.

Luckily, the internet is full of tips to help you get your tax affairs in order. The IRS website has a great section to help you out: you might find its tax calendars and notifications especially useful as a newbie.
However, taxes are not just about inventory and transactions, simple things like where and how you register your business can have a big impact on your annual tax bill.

While sole proprietorship is among the most common business entities, registering as a corporation might be a better fit for you, as some deductions can save you from higher taxes in the long run. This ultimate guide to business structure can help you make that decision.

Lastly, if you figured your home is the best place to register your office, make sure to keep all personal and business expenses, bank accounts and credit cards separate. It’s always in your interest to consult with a tax lawyer or CPA.

2. Paperwork

As your business grows, so does the number of employees, transactions and ultimately paperwork. Keeping good track of it can save you a lot of hustle as failing to declare some transactions may result in a penalty. However, despite this being a relatively reasonable assumption, in practice it is very challenging to control every single receipt that goes through your business and this is where technology can be of great help.

Look for better and faster way to do business. One leading accounting firm in Vancouver aggressively use PDF to Excel tool whenever they need quick access to the data from PDFs, thus saving hundreds of hours. This technology can convert PDF receipts, balance statements and other financial data into Excel, saving you precious time when transferring PDF data into an accounting. Saving paperwork is very important to us at ForwardAI, and we built Forwardly from the ground up so that you can always attach source documents with a transaction. Next time you get a bill from your hydro company, just attach with the transaction in Forwardly and keep that record in the cloud. There is no better way to audit proof your business today and introduce efficiencies in your work flow.

3. Cashflow

Having readily available cash is one of the basic accounting principles for any business. With a limited cash flow, a business cannot pay for all daily expenses.

Keeping track of bad debts can save you a lot of stress and money. Very often, business owners are too busy to keep track of all of their clients’ payments. Once again, a good accounting software can help you keep your receivables under control. Make sure you check this report frequently in ForwardAI Predict to catch bad guys before they become a major problem.

Quick tip for this scenario would be to check your client’s’ credit record before doing business with anyone, though I realize not all small business owners have the time and money for this extra effort.

Another source of bad cash flow is the lack of tune of credit terms. For instance, if your suppliers ask you to pay for inventory within 15 days and your customers have a 30 day period to repay their debts, you can end up with a negative cash flow. Obviously, the best solution would be to negotiate and get those terms in sync.

4. Payroll

Payroll is another problematic accounting area for small business, and it really comes as no surprise. There are 3 choices in this situation: either handle payroll on your own, hire an accountant, or use a software.

If you decide to handle everything by yourself, there are several steps you need to take:

• Define your worker as an employee or a contractor
• Have them complete legal paperwork for appropriate deductions
• Define pay period
• Define employee perks and compensation plans

Once you have it all set up, make sure to keep your payroll system up to date as the whole responsibility lies solely on to you.