Key Takeaways:
- Business accounting involves reporting, tax preparation, financial analysis, and forecasting, and it’s crucial to ensure your operations keep running.
- Common accounting issues include classifying expenses wrong, keeping inaccurate records, poor cash flow management, and others
- To avoid business accounting issues, improve your recordkeeping, work with a tax pro, and use accounting software
Every business depends on a successful accounting process to keep it running. Your operations won’t succeed without putting financial reporting and bookkeeping systems in place to understand how your business is doing – and where it’s headed in the future. You need to prioritize visibility and organization.
Unfortunately, no business is immune to the complexities of accounting workflows. You have to track all of your expenses, run detailed financial reports, make accurate projections, and analyze data. With all of these moving parts, many pitfalls may arise, especially if you don’t have a dedicated accounting team member focused on these tasks.
Overcoming accounting issues is important so you’re never behind on tax preparation or reporting. This guide covers what business accounting entails, the most common business accounting issues, and how to tackle them.
What Business Accounting Entails
Many business owners fail to realize that accounting could be what’s holding them back from revenue growth. These issues can be a big burden for both small and large businesses. Accounting should be a top priority and critical component of your operations.
Ensuring accounting practices are in order helps you set up your business for long-term growth and success by giving you accurate financial information and helping you stay organized and efficient. Generally, business accounting includes these key areas:
- Reporting: Generating documents like income statements, balance sheets, quarterly reports, expense reports, and more.
- Tax preparation: Organizing each month’s expenses and income to help the business prepare for taxes, including employee tax documents, payroll tax responsibilities, vendor and contractor tax forms, quarterly tax payments, and reporting to the IRS.
- Business financial analysis: Running reports to gather data on business functions and their ROI and helping teams make adjustments as needed. Analyses help you understand which parts of operations need more resources and attention and help business leaders uncover how the business is performing.
- Forecasts: Using the data gathered in analyses to come up with realistic cash flow forecasts and projections, whether to make key business decisions or to influence potential investors.
Stay on top of accounting workflows so you always know where your business stands and where it’s headed. Organizing records and tracking financial activities are crucial parts of tax preparation and management.
Five Common Business Accounting Issues
Some businesses don’t (or can’t) prioritize accounting like they should, or they need to update their processes for more efficiency. Here are five of the most common business accounting challenges and how they happen:
1. Improper Classification of Expenses
This is a very common mistake, especially for small business owners. Improper classification occurs when an expense is recorded incorrectly, which can impact internal reports and tax reporting. Business owners sometimes mix up their personal and business expenses, which leads to this problem, or they fail to document their business expenses properly. The result could be that they have a higher tax liability than they should.
2. Failure to Keep Good Records
Recordkeeping may sound like a fairly routine and simple task. Unfortunately, many business owners fail to keep accurate, up-to-date, or complete records. They may not have the time, technology, or staff resources to make this happen, or they just don’t understand how to do it. Poor records make it hard to accurately track expenses and income and can easily lead to errors in financial statements. These mistakes can lead to serious issues with the IRS.
3. Lack of Financial Technology
Saving receipts, invoices, and bank statements won’t get you very far if you don’t have a way to make sense of it all. Some businesses use simple spreadsheets to track income and expenses and create reports, but sometimes doing so can lead to errors and discrepancies, especially as the business grows and its services expand. Using a software program to help monitor cash flow, track transactions, and pull reports can be a game changer in your accounting success. Automation features within the software can help you avoid mistakes and stay organized.
4. Changing Tax Laws and Regulations
Business owners need to keep up with any changes made to tax laws to ensure they stay compliant. For instance, the COVID-19 pandemic led to many new payroll and tax considerations for businesses as well as new forms of relief. Tax credits like the Employee Retention Credit and programs like the Paycheck Protection Program have complex guidelines employers must follow to reap all the benefits. Sometimes business owners aren’t sure what to do in their accounting processes to comply with all of these changes, which can lead to oversights that impact their finances and taxes.
5. Failure to Manage Cash Flow Effectively
Cash flow is the reason many businesses fail. It’s easy to think you have plenty of income to cover your expenses, but managing timelines is an art. You have to account for any upcoming payments and be sure the dates line up so you have enough income coming in. Some business owners don’t consider that customers may be late with a payment or they may take on too many unnecessary business expenses. Cash flow can be tricky, especially when there isn’t a specific person regularly working on it.
Accounting issues can unfortunately lead to many problems for a business, like inaccurate recordkeeping, tax reporting mistakes, and imprecise forecasts. Proper accounting is a key component of ensuring your business stays on the track to growth, so better practices are a must.
Five Ways to Avoid Business Accounting Issues
Fortunately, you can take steps right now to improve your business’s financial practices and resolve your accounting issues. Let’s walk through five ways you can get past common accounting issues:
1. Improve Recordkeeping and Organization
Your first step will probably be to get organized. This means putting processes in place for how you track financial data, where it’s stored, who’s in charge of it, and how often it’s updated. Ensure you’re storing employee and financial records in a safe and secure location so no information is breached. Keep them for at least three years for tax purposes (and four for some employee documents).
2. Work With a Tax Attorney for Proper Expense Classification
You may have the best intentions to separate your personal and business expenses but are unknowingly making mistakes. It’s easy to do when your business is so close to your personal life. Accounting may not be your forte, and that’s OK. Try working with a tax attorney who can help you understand how to properly classify your expenses so you never run into trouble with taxes or pay more than you owe.
3. Get Help With Financial Statements
Financial reports help you gather and analyze data needed to make business decisions. You also may need reports to discuss profitability with investors or do your taxes each year. Ask for help from an accountant or other financial professional so you know which reports you need and when. A professional can also guide you through the process of properly generating reports.
4. Use Accounting Software
Consider incorporating an advanced accounting software like QuickBooks, to your workflow. These platforms do a lot of the work for you by tracking your expenses and income, categorizing transactions, pulling reports, saving information for tax time, and generating invoices. A software program can help you stay organized and help ensure your financial data is accurate.
5. Improve Payroll Management Practices
Payroll is a big reason many businesses run into accounting errors. Small businesses in particular may have a hard time without a full human resources or payroll department to process employee information, tax forms, and salary payments. Consider working with an outside professional who can help you put the right payroll practices in place. You can also use software to take on some of these tasks, like staying compliant with payroll regulations.
There are many easy fixes for whatever accounting issues you’re facing. Make sure you fully identify what’s going wrong and involve any relevant stakeholders in accounting decision-making. Your best bet to resolve accounting issues is to turn to a tax professional for help.
More Small Business Accounting Tips
Small business accounting issues are common and may never seem to end, no matter how many technologies you incorporate or how clean your books are. What can you do to improve your workflows even more and ensure your business can keep growing? Here are a few additional tips to improve the way you approach accounting:
- Triple-check your data: Errors are common when you’re working with numbers. Even when you use technology to help with accounting, make sure you double- and triple-check everything to ensure nothing important is missed.
- Keep software up to date: Implementing software isn’t the end of the story. Most platforms have regular updates, and keeping up with them is a must so your data is never lost and your numbers stay accurate.
- Pay close attention to changing laws: The IRS and other government entities regularly alter regulations or introduce relief programs that could impact you. Always stay aware of what’s changing. Ask a tax professional if you’re unsure how something affects you.
- Use accounting tools for your industry: Some industries have their own accounting software and resources that can help you create a strategy customized to your unique needs. Find out what tools businesses similar to yours are using and see if they work for you.
- Follow record storage best practices: Remember that financial records may need to be kept for a period of time in the event your business experiences a tax audit. Create a plan for securing any financial or tax documents for your business.
- Tap into expertise: You are surrounded by accountants, tax professionals, financial experts, and tax attorneys who can answer any questions you have about accounting and reporting. Use these resources when you’re in doubt.
Follow these tips to set up best practices within your organization. Accounting is never something you should overlook, even if you believe your pay structure and cash flow are simpler than other businesses. Staying organized and accurate helps you win in the long run.
Contact Silver Tax Group With Accounting Questions
Small business owners face many accounting challenges that aren’t always easy to overcome. Start by updating your systems to incorporate technology and prioritize accuracy. Turn to a tax attorney when you just can’t seem to get on top of your accounting woes and need a better solution.
The team at Silver Tax Group is ready to help you succeed. We understand the nuances of running a business and know how overwhelming it can be when you’re trying to do it all yourself. We can help you analyze your accounting needs and uncover the root cause of any accounting issues you’re facing. Our experienced tax attorneys can also help with audit defense, tax preparation, tax fraud investigations, tax debt resolution, and much more. Get your accounting organized and accurate with expert help – reach out to Silver Tax Group today to speak to a tax professional about your accounting needs.
