Bookkeeping is one of the most important aspects of any small business, but it can also be difficult to get right. So if you're struggling with common bookkeeping problems, don't worry - you're not alone. In this blog post, we'll look at some of the most common issues and offer solutions to help you get back on track. So read on for tips on fixing your books and getting your business back on track!
Are you a small business owner struggling to keep up with your bookkeeping? Maybe you're not sure what all goes into keeping your books in order, or maybe you don't have the time to do it yourself. In either case, don't worry - you're not alone!
This post will outline some of the most common small business bookkeeping problems and solutions. Keep reading for tips on how to get your books in order and improve your business' finances.
Small businesses can often experience the same problems when it comes to bookkeeping. From tracking inventory to creating invoices, keeping track of finances can be daunting.
However, business owners can stay on top of their finances and keep their businesses running smoothly by understanding some of the most common bookkeeping problems and solutions. In this blog post, we will discuss three common small business bookkeeping problems and provide tips on how to overcome them.
If you're a small business owner, you know that keeping your books in order is essential for making informed decisions and staying profitable. However, bookkeeping can be confusing and time-consuming, especially if you're unfamiliar with the process.
This post will discuss some of the most common small business bookkeeping problems and solutions. Armed with this information, you'll be able to streamline your bookkeeping process and keep your finances in check.
Let's get started!
Symptoms of Bookkeeping Issues
The good news is that many of the factors that contribute to the failure of small businesses can be fully avoided. This is especially true when looking at the financial and accounting aspects of the problem. If you are paying sufficient attention, you ought to be able to see some of the cautionary indicators that your company is heading towards problems. Some warning signs that you may be having difficulties with your bookkeeping are the following:
- Unsuccessfully applying for bank funding. The fact that your organisation is unable to obtain bank finance may be a symptom of other problems. It's possible that your bookkeepers are applying to an excessive number of places at once, that they are unable to follow the application instructions, or that they do not have the data that was needed on hand. Or, even worse, the state of your finances may be so precarious that you are ineligible for the programme.
- Accounting reveals that you can't cover payroll. Paying one's staff promptly and in full should be at the top of any company's to-do list. In the event that it is discovered through accounting that you are unable to meet payroll, which comes as a surprise, it indicates that someone has dropped the ball at an earlier stage.
- Out of compliance with loan covenants. When your company borrows money, the loan will typically come with terms that, if violated, can land your company into hot water with the lender. If your company violates any of these stipulations, your company may find itself in legal trouble. There are three distinct kind of loan covenants to choose from.
(1) Affirmative, which requires you to do certain things such as carry insurance or submit financial statements; (2) Negative, which precludes you from doing certain things without approval, such as selling assets or taking on additional debt; and (3) Financial, which requires you to maintain certain performance or liquidity ratios. These three types of conditions are referred to collectively as the conditions.
If you break a stated covenant, a lender has the right to take action against you, which may include terminating the loan or seizing assets that were deposited as collateral. The purpose of your bookkeeping should contribute to ensuring that these occurrences do not take place.
- A lack of clear, repeatable monthly closing processes. When your bookkeeper's procedures for the monthly closing of the books are disorganised, there is a considerable probability that something will be forgotten about. This could set off a chain reaction of blunders that would eventually lead to a catastrophic financial situation. There is a possibility that there are accounts that have not been reconciled, expenses that have been missed, inaccuracies in payroll, and other issues that will be difficult to address in the future.
- Monthly financial statements are not completed timely. If your bookkeeper does not keep the books up to date in a timely manner, this can result in poor business judgments because the data that is provided will not be current. If the information you have regarding your finances is not up to date, how can you possibly make decisions regarding replacement of equipment, inventory, or staff? When you eventually have to take action to rectify this condition, you will also suffer a loss of revenue.
- Hearing excuses instead of getting deliverables. It's probably time to get a new bookkeeper if the one you have is giving you excuses rather than results. Despite the fact that every company and department faces obstacles, the future of your company is much too essential to leave something of this nature up to chance.
Solutions to Typical Bookkeeping Issues
Nobody likes to get up one morning and discover that their company is dangerously close to closing its doors forever. This can be a devastating realisation, and it is made much more so when you consider the fact that there are preventative steps you can take to lessen the likelihood of something bad happening.
Whether you already see a few indicators of bookkeeping problems in your company or you want to make sure that these problems never occur, the following are some of the greatest solutions to these obstacles.
- Technology. Excel is one of the many outmoded tools that a large number of startups and even more established small businesses continue to use to monitor and manage their company's finances. It's possible that this will work in the early stages of a startup, but most businesses will require a more robust approach.
Utilising accounting software that is capable of doing regular and automatic updates is the most effective course of action. One good illustration of this is the accounting software QuickBooks, which runs on the cloud and saves your data there.
- Automation. There is no valid excuse for today's small enterprises to resist the adoption of technology. It makes a lot of jobs easier to complete, and it even removes some work by automating some of it.
Imagine that your bookkeeper is struggling to keep up with all of the data entry demands placed on them. In that situation, you can alleviate some of that strain by enabling your bank or some other third party to automatically feed entries into your accounting or operations system. This will free up some of your time.
- Training. The times are always changing, and it would be a shame to slip behind or perhaps lose your business because your accounting team failed to stay up to date with the most recent developments. Keeping them up to date on changes and ensuring that you have the best employees on your team may be accomplished through a variety of different strategies, including the following:
- Instructional videos. There are many different online training opportunities available for bookkeepers, and these chances vary according to the bookkeeper's present skill level and areas of particular interest. For instance, Quickbooks offers free training courses, some of which even have the potential to result in a certification.
- Find a teacher or a guide to help you. For instance, if a new state payroll legislation is enacted or significant changes are made to the tax law (again), find an expert to offer a presentation on how these changes will influence financial files and workflow and invite them to your place of business. A mentoring programme could also be implemented at your organisation in order to assist junior employees in developing into more capable bookkeepers and future supervisors.
- Learning in a classroom setting. The ongoing education of individuals working in the accounting industry can also be sponsored by your organisation through the implementation of programmes such as tuition reimbursement and salary incentives for higher degrees.
- Outsourcing. Outsourcing one's bookkeeping duties is often regarded as one of the most effective strategies to guarantee high-quality results. When you choose a partner or a professional that possesses a better skill level than you have, this strategy is especially successful. Some companies, for instance, facilitate client connections with part-time bookkeepers and accountants who have demonstrated levels of expertise that allow for the task to be completed more quickly and accurately.
Preventing Frequent Bookkeeping Flaws
1. Trends in cloud-based applications for businesses
Over the course of the past five years, companies all over the world have placed an increasing amount of faith in the management capabilities offered by cloud-based software.
According to the Australian Bureau of Statistics' (ABS) Business Use of Information Technology bi-annual report in 2016, sixty percent of enterprises rely on services provided by cloud computing. However, in the same research that was published two years earlier, just 25% of respondents reported utilising paid "cloud computing."
In addition, the phrase "cloud computing" did not appear anywhere in the same report in the year 2012!
Business owners who were unfamiliar with the concept of storing their data "in the cloud," scared of the idea, or sceptical of it are now adopting online software platforms to work in ways that they could not have conceived of in the past.
Xero Accounting has been at the forefront of innovation within the realm of accounting. And it's been a huge boon for accounting professionals as well as people who own their own businesses. Because using Xero, not only have we been able to launch and cultivate a fruitful virtual bookkeeping firm, but we also have the opportunity to deal with customers located throughout Australia. But in addition to that, we have been able to generate revenue for both our family and our employees.
2. Reduce bookkeeping costs
But things aren't all rosy for accountants and bookkeepers because we grew up in a world where business owners wouldn't dream of doing it themselves or leaving it to an unqualified person in the interest of saving a few dollars. This has made it difficult for bookkeepers and accountants to find work.
Businesses were pleased to pay for accounting services since they viewed it as a speciality that required knowledge.
However, with the proliferation of cloud accounting platforms such as Xero, MYOB Online, and Quickbooks Online, we have seen a corresponding rise in the number of business owners opting to do it themselves, hiring a friend or family member, or engaging an existing administrative person to take on their bookkeeping responsibilities.
In most cases, this indicates that the task of keeping the books can be accomplished at a significantly reduced cost, and in some instances, even "for free."
And why on earth not? Naturally, business owners want to keep their costs as low as possible; therefore, reducing the amount of money spent on bookkeeping makes perfect sense.
3. Many firms waste hundreds of dollars annually on incompetent bookkeepers
We have witnessed an increase in the number of individuals who are not qualified bookkeepers selling 'bookkeeping services' in tandem with the continued rise in popularity of cloud software.
Many people have the mistaken belief that cloud software is so advanced in today's world that it can handle everything for you. You just need to press a couple buttons when they turn green. That's all there is to it. Right?
It shouldn't come as a surprise that we've observed an increase in "rescue jobs" as a result of frequent bookkeeping blunders given the deceptive promises made by companies that sell accounting software. These companies say that bookkeeping is "beautiful," "simple," and "effortless."
When new companies come to us for a quote, the first thing we do is do a Bookkeeping Health Check on their data file. In addition, we routinely label ninety percent of those cases as "rescue tasks."
And there is cause for us to believe that this is directly associated with the trend towards the use of software that is hosted in the cloud, the falsely marketed simplicity of bookkeeping, and the rise in the number of persons who are untrained to handle bookkeeping.
4. Almost all new client files contain accounting errors
When the books are in a muddle, bookkeepers refer to cleaning them up as a "rescue job." Transactional mistakes can be present in a data file due to poor setup or human error in data entry. These errors can be produced by either.
In many cases, the proprietor of the company is wholly oblivious to the fact that the figures are not accurate. They have not been instructed to recognise problems, so they do not know where to look; even if they did know where to look, it is unlikely that they would know what the faults appear to be.
Nevertheless, there are situations when the owners of businesses come to us with the feeling that "something isn't adding up." Look, for instance, at the invoices listed on their payables report; you may be positive that they have been paid for those.
Check Your Bookkeeping for Mistakes to Detect Them
A so-called "bookkeeping health check" is what allows us to make a diagnosis of the data file. In addition, we accomplish this by performing an exhaustive examination of the file, beginning with the "usual suspects," or the parts of the document in which errors are most frequently discovered. In addition, we keep careful records of everything as we go along and give the customer a comprehensive summary of the developments in the case file.
After that, we collaborate with the customer to establish a priority list for the order in which the faults should be repaired and discuss the costs that are associated with this process.
The Occurrence of Bookkeeping Errors Should Not Be Overlooked
It's a pain to fix the data files! The best medicine is always preventative health care. Regrettably, correcting bookkeeping mistakes can be as much as five times more expensive than executing the job correctly from the beginning.
When it comes to moving forwards, business owners frequently pose the following question to us: "Can we just forget about the mistakes and start fresh?"
They do this because "rescue jobs" have a very high price tag attached to them.
Because it needs a significantly greater degree of knowledge and experience, the price that we charge for rescue work is twice as much as what we charge for standard bookkeeping. When you go through time, it is more difficult to figure things out, and it is also more difficult to get information.
Should I then invest the money to patch it up, or is there another option?
The Most Well-kept Secret of Any Successful Company is its Meticulous Bookkeeping
There is a proverb that is used in the field of accounting that goes, "trash in, garbage out." And what this implies is that the large picture reports will be inaccurate if the minor information that are being entered into the accounting file are incorrect.
To provide a straightforward example, one could compare the process of rescuing someone to untangling an extension cord. In the same manner that the extension cord will still be able to carry energy regardless of whether or not it is tangled, it will also be unable to serve its intended purpose, which is to extend the length of a cord by the greatest feasible amount.
In a similar fashion, the primary objective of accounting data is to evaluate the past, current, and future financial position and performance of the company, to forecast and plan for the future, and to guarantee that the company complies with all applicable business legislation, such as the Taxation, GST, Fair Work, and Corporations laws. In this way, accounting data serves a dual purpose.
What good is it if it can't even be used correctly or efficiently for the thing that it's supposed to be used for? When it comes to employing a bookkeeper, business owners frequently have the impression that they are squandering their money. They are unaware of the consequences that will result from selecting the more affordable choice.
The tangled extension cord is an additional annoyance because it is difficult to use and difficult to store away. And nothing is more aggravating than getting into your Xero file to find out how much money your clients owe you, only to find that the total doesn't appear to be accurate. That information is not reliable, thus you should not rely on it.
The cord is twisted and distorted, which increases the likelihood that it will break, which in turn increases the risk of electrocution. In the same vein, if your bookkeeping is erroneous, it could lead to underpaid salaries, taxes, and other compliance issues. This can result in huge fines, costly audits, legal troubles, and even possible jail depending on the severity of the violation. In addition to this, there is a significant amount of unnecessary tension that comes with the area.
You can "ignore" the knots in your extension cord in the same way that you can recognise that ignoring "minor errors" or low quality accounting data to save a few thousand dollars is both imprudent and a major danger for the firm. In the same manner, you can "ignore" the knots in your extension cable.
Telltale Indicators That Your Xero, Quickbooks, or MYOB File Has These Typical Accounting Flaws
You shouldn't put the future of your company in jeopardy by disregarding the main signals that your company is on the path to collapse or by concentrating your energy on activities that aren't profitable. In addition, be sure to take advantage of any tax deductions and prospects for advancement.
- The reports on payables and receivables don't match what you believe you owe in either direction.
- Even if there is evidence of a profit on the profit and loss account, you do not appear to have any cash on hand.
- The profit and loss statement reveals significant amounts in an account labelled "General costs."
- On either your profit and loss or balance sheet, you should see an account labelled "Suspense."
- There are accounts that have balances that are in the negative (bracketed) (apart from Accumulated Depreciation and a few others). The majority of the accounts on the balance sheet ought to have a positive value (non bracketed)
- Electronic clearing accounts, payroll clearing, and undeposited monies are not considered to be $0.
When you have finished checking these areas, make a note of what you find. After that, you should get in touch with an experienced Registered BAS Agent to either remedy the problems or oversee the procedure.
Once you have verified that the data file is free of errors, you should give careful consideration to the possibility of using the services of an experienced bookkeeper so that moving ahead, the data will be entered in an accurate and timely manner. Or, at the very least, acquire some training for either yourself or the person who is handling your bookkeeping responsibilities.
And have a BAS Agent look over the data file at least once every three months at the very least (at BAS time). This way, you can be certain that any faults will be discovered before it is too late and before they snowball into a much bigger problem.
The Benefits of Making Up for Shortfalls in the Accounting Department
Bookkeeping is not merely an additional part of business operations that has to be addressed, nor is it merely an additional administrative load. To the contrary, it is an essential activity that is required for the continued existence and expansion of your company.
If you don't have books that are up to date and accurate, you won't have any figures to look at. Without that point of reference, your company will be unable to complete fundamental responsibilities like paying its employees and submitting tax filings.
Any company worth its salt should make it one of its highest priorities to draw attention to these deficiencies and take active actions to address them. When you dedicate the necessary amount of time and resources to accomplishing this, your company will be eligible for a number of rewards, including the following:
- Visibility to the company's cash position. Cash flow issues are frequently cited as one of the key contributors to the demise of businesses. If you can get a grasp on the bookkeeping problems at your firm, you will have an instant understanding of where you stand in terms of your cash position no matter the time of day or night.
- Opportunity to make more timely and better-informed decisions. Better information obtained in a timely manner leads to more sound choices for a company's business. For instance, your company is able to make more educated decisions on the addition of new product lines, the hiring of new staff members, or the purchase of new equipment.
- Improved banking and vendor relations. When you're having trouble with your accounting department, it will have a negative impact on your relationships with your company partners. You have the ability to turn this situation around and enhance these ties, which can act as a spark for the growth of your firm.
- Accurate and timely data for strategic initiatives. Your company's level of growth and financial success will be directly correlated to the strategic direction in which it is headed. When you have data that is up to date as well as accurate coming from your bookkeeping team, you will be in a position to develop the most robust strategic plan for your company that is humanly conceivable.
Businesses don't have to accept mediocrity as the only option. When their financial statements are accurate and up to date, they have a better chance of maintaining a stronger position and running more efficiently. When reporting one's financial performance consistently and accurately, one can frequently acquire a competitive advantage.
Business owners may regain control of their money, improve their decision-making, and boost their profitability with the assistance of solutions that are affordable to them.
The Reason You Can't Afford A Poor Bookkeeper!
The majority of the company owners we talk to are very cautious of spending their hard-earned money solely on those things that will;
- To the advantage of their company,
- Ensure that it is profitable,
- Assist in its expansion, and
- Offer a profit to the owner of the business as a return on their capital.
All of these things will be impacted, but not in a way that is favourable due to poor bookkeeping.
We frequently see and hear from business owners who are under the impression that they are more than capable of keeping their own books, or who believe that they do not require the assistance of general administration workers to carry out these vitally important responsibilities.
There are a lot of online software products that give the impression that the only thing a bookkeeper does is code bank statements, and that they can do this with the help of bank feeds and auto-coding guidelines.... But is it truly all that bookkeepers are responsible for?
The strategy of simply encoding the bank statements will inexorably lead to a situation in which many or all of the following errors will arise as the inevitable conclusion.
- Transactions that are recorded with the wrong GST coding have the potential to result in
- a claim for a GST refund that had not been paid for was made
- The payment of GST for commodities that are not subject to the GST
- Incorrect information provided for the BAS and IAS.
- GST not allowed to be claimed
-EXAMPLE: claiming GST on items and services that are exempt from GST, which include the majority of worker facilities.
- Transactions that are incorrectly assigned to accounts on the General Ledger.
-There is a greater amount of tax paid than there should be.
- Tax evasion, which results in monetary penalties
- Lost chances to save money on taxes before the end of the year
- The application of the inappropriate tax code
- EXAMPLE: The purchase of new machinery that is recorded as a cost rather than an asset in the accounting ledger.
- Accounts that have not been reconciled, for instance, include
- Bank Accounts
- Credit Cards
- Wages
- PAYG Withholding
- Superannuation
- Debtors
- Creditors
- GST collected and paid
- Australian Tax Office Integrated Clients Account
- Loan Accounts, business loans and vehicle loans
- EXAMPLE: Instead of lowering the amount shown as a debt on the balance sheet, payments made towards SUPER are being recorded as "Super expenses."
As you can see, this is a quite comprehensive list of scenarios in which things can very frequently and in a very short amount of time go terribly, horribly wrong! It is a waste of money for a company to keep its books with the help of employees who lack experience and expertise.