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Top Bookkeeping Issues Businesses Face and their Solutions!

Top Bookkeeping Issues Businesses Face and their Solutions! Last updated: 30 Oct, 2020 By Ashish Rana


Irrespective of the business size, accounting holds immense importance in every business. It is imperative to take care of the accounting process in an efficient manner throughout the year. When it comes to startups/small businesses, they face a lot of accounting challenges owing to a lack of proper resources, especially when it comes to bookkeeping. Most of them adopt the D-I-Y approach that leads to improper record keeping. This, in turn, provides them with little to no visibility in the forthcoming cash flows, and they are unable to have a clear picture of their finances and fail to plan appropriately. There are affordable solutions available for them, and they should simply focus on building their business and leave bookkeeping to experts. Sure Signs of Poor Bookkeeping Unsuccessful Bank Funding This issue occurs when financial records are not maintained properly, and one fails to provide or qualify the requested data by banks. Also, due to poor financial clarity, your bookkeepers might be applying at multiple places or failing to understand the application instructions. Uncovered Payroll If it gets revealed through accounting that you are unable to cover the essential business accounting task of payroll, it is a clear indication of poor bookkeeping. Unclear Repeated Monthly Closing Unclear monthly closing on a regular basis in the form of payroll mistakes, mixed expenses, unreconciled accounts, etc. indicates improper record keeping. Untimely Monthly Financial Statements If your bookkeeping practice involves the late updating of books, all your financial decisions will go wrong due to the unavailability of current financial data. Big on Excuses, Low on Deliverables If your bookkeeper makes excuses more than he delivers, you need to make a change fast if you want to secure the financial data of your business. Common Bookkeeping Issues Explained by Industry Experts with Solutions 1. Maintaining Current Financial Records Kirsha Campbell, Virtual CFO A top bookkeeping issue faced by business owners is how to stay current with transactions being entered to allow timely preparation of financial reporting for decision making to implement and change business strategy as needed. This can be overcome by implementing an effective system for recording transactions. This can involve automation systems being implemented or outsourcing the bookkeeping function to trusted experts. 2. Inappropriate Bookkeeping System Oliver Andrews, Owner of OA Design Services Ensuring that accounting tasks are completed on time or keeping a diligent record of expenses and fees may not be enough as a startup continues to grow. To keep up with growth, companies need systems that can also keep up with changing numbers. As a result, simply installing accounting software or linking business accounting with the software may not be enough. A growing business needs systems that can provide timely accounting figures, data that reflects the health and state of finances at any given time, and accounting analytics to help with critical business decision making. Efficient and self-sufficient accounting systems are vital to business sustainability. 3. Poor or No Bank Account Reconciliation Linda Diakite Karressy, Owner of Insight Financial Group One issue I have seen recently with bookkeeping is organizations are not reconciling their bank and credit card accounts.  One organization had not reconciled since the start of their business. Organizations do not understand the reconciliation is to ensure the cash balance in the bank system and accounting software equals at the end of the month.  The reconciliation helps to ensure all bank transactions are being recorded in the accounting software along with identifying unusual transactions. I have found accounting errors such as duplicate charges, duplicate deposits, and bogus transactions. The solution is to reconcile each month.  I have told organizations this is as important as invoicing customers.  Make this task a part of your duties.  I suggested the following:

  • Put a reminder on the calendar

  • Connect the bank accounts to the accounting software

  • Enter in transactions in the accounting software in a timely manner

  • Subscribe to receive bank statements electronically

  • Not only reconcile the accounts but review reconciliation report for duplicate entries, fraud, and unclear items

Ultimately not performing the bank reconciliation can overstate or understate the balance sheet.  Many organizations struggle to get their PPP application in because their accounts were not reconciled! 4. Unclear Account Classification Karriem Kanston, Owner of Kanston Development A big issue we see is small businesses that have a hard time classifying their accounts.  The most important tip is that before you set up your accounting books, you should have a meeting with your bookkeeper or accountant and understand what structure of accounts you will need for your business using industry norms to set up your accounts. If you already have your accounting books set up, my recommendation is to still have this meeting with your bookkeeper and accountant. Remember, your accounting books should help you as a business owner to make financial and operational decisions to assist your business with growth.  This data can also be benchmarked to other industry’s financial data.  Your business data is one of the most important datasets that can help you make important decisions to change the trajectory of your business for the future. 5. Poor Understanding of VAT Jon Gibbons , Owner and Editor of Smart Vacuums This is a common bookkeeping issue, and understandably since it can be difficult to fully grasp. With the introduction of Making Tax Digital back in April 2019, now more than ever is prime time to start understanding the process. VAT was something I struggled with immensely in the beginning, especially since it’s possible to register too early and too late. The first is that you only need to register for VAT if you cross the threshold (currently £85,000) in a rolling 12-month period. Otherwise, there is no need to register- saving you a lot of extra admin. You also need to consider the fact that making the correct VAT calculations and adding flat rates is an essential part of ensuring you get the prices right. There are a lot of pitfalls that come with VAT, and many business owners (myself included) don’t have enough time to keep coming back to it and ensuring it is all up to standard. If there is any part of your accounting that you outsource, make sure it is your VAT as there are countless pitfalls that you risk falling into, as well as hefty fines if you submit erroneous returns. 6. Inappropriate Record Keeping CJ Xia, Owner and VP of Marketing & Sales at Boster Biological Technology Maintaining proper documentation of the financial record is the most crucial factor for all businesses. Like other small and medium businesses, we also face daily challenges in bookkeeping and accounting matters—one of the top bookkeeping issues we have faced in improper record-keeping. The issue occurred because we didn’t have the bandwidth, and our staff didn’t know which document to track. We solved this problem by tracking and staying organized. We generated a receipt and invoices for the income that flew into our business. We entered each info into our accounting system and kept a copy as confirmation. 7. The D-I-Y Approach without Knowledge Julianne Autry, CEO at Financial Foothold The number 1 bookkeeping issue our firm sees is the business owner or another unqualified person doing their own books who does not understand accounting.  They learn software but don’t apply any accounting knowledge to produce accurate financials. This is a common issue because Intuit markets their software to business owners and imply how easy it is to use.  If used improperly, this can lead to inaccurate tax returns being filed or having to pay a firm to clean up historical transactions! We always encourage our business owners to be educated on what their financial reports mean and have them completed by a professional with accounting knowledge. The first thing we do when taking a client on is to review the books to make sure errors are corrected in order to produce accurate reports and tax returns. 8. Improper Expense Tracking James Jason, Chief Accountant, Financial Analyst, Currency Trader at Mitrade One of the biggest bookkeeping issues that face businesses is improper tracking of expenses. This is a problem that usually affects startups and small businesses due to a lack of experience as well as a lack of proper expense tracking systems. Recurring expenses, invoices, and paper receipts can become too much to track. At times, employees have used their money and need to be reimbursed. Collectively, these expense management demands can be overwhelming such that they spill over to other aspects of the business. The best way to keep track of expenses is to ensure all expenditure is recorded. Invoices, receipts, and all money out should be recorded. If the task is too much for the organization, hiring a professional in accounting or a related financial field is a good idea. 9. Too Much Time Consumed by Bookkeeping David Adler, Founder and CEO of The Travel Secret One bookkeeping challenge we faced that is really common for a lot of business owners is the time back-office work can take (bookkeeping included). But luckily, there are a few quick fixes for that now in the form of bookkeeping software because now you can automate so many aspects of your bookkeeping to free up employee time. Automation in our bookkeeping process was huge because it helps us ensure accuracy and efficiency at the same time by automatically transferring employee info and retrieving important documents. There are a lot of different ways you can automate aspects of your bookkeeping but taking the time to examine your most time-consuming tasks is a good place to start. 10. Inefficiency in Tracking Expenses Nicole Garcia, the Chief Marketing Officer of Mostcraft We are a fairly small company that focuses on growing our site’s domain and traffic. We work on affiliate marketing and ad revenues as a means to generate income. Altogether, we have 15 employees that maintain and work on our site. Recently, we discovered that we had problems tracking our expenses. As our company grew, we were not particularly thorough in documenting our expenses. We didn’t mind the small subscriptions we pay for marketing and creative services we avail, citing it as a small number to contend with. That proved to be an oversight on our end because up until recently, we discovered that we have recurring subscriptions to services that we’re no longer using as well as other software purchases that weren’t reported by members of our team. All of these unreported and undocumented expenses lead us to grossly inflate our budget over time. To address this problem, our solution was simple. We made sure that all expenses are accounted for, no matter how small it is. Then, we input all our expenditures to tracking software so it can simplify the whole process. 11. Neglecting Sales Tax Julia Spahiu – Founder & CFO of Edi and Sienna Group As easy as bookkeeping might seem to some business owners, it is a very tedious job that, if done in a wrong way, could cost you a lot. A big mistake I see with many business owners is that they neglect sales tax. They seem to think that if they decide not to collect, they do not need to pay it or if a vendor did not charge them, they are not responsible for it. Unfortunately, collecting sales tax is not up to your discretion, so you have to check with your State if the services and or products you are selling are taxed. Also, if a vendor is not charging you sales tax, but you know they should, you need to either let them know, or if not, you need to report it when you file your sales tax for that period. It is imperative that you have a system in place to keep track of your sales as well as any reimbursable expense. Conclusion Undeniably, bookkeeping holds a lot of significance in the proper working of an organization. Until books are maintained properly, clear visibility into financial data is not possible, and without it, effective business decisions cannot be made. One should leave bookkeeping to experts if one does not has the required skills, time, and knowledge of managing books or using accounting software. If you feel the same and are searching for a top-rated provider for bookkeeping outsourcing services, you must consider Cogneesol. It has been providing back-office accounting support to multiple businesses globally since 2008. Contact now to start your free trial!

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