It is crucial for any business to track their income and expenses. Accounting is the process of organizing and analyzing financial transactions for better decision making. If you make any mistake, it can cause monetary loss, create problems in your relationships with vendors, and obstruct your business growth.
Knowing the common accounting management challenges and what you can do to solve them will help minimize the risk for your business.
Top 5 Accounting Challenges Faced by Small Businesses & Startups
Manual accounting often leads to unidentified financial errors and management loopholes. Small businesses managing financial processes without automation often face these problems.
- Human Error in Data Entry & Bookkeeping
Manual data entry is prone to errors. And even the slightest mistake in financial data entry can lead to significant monetary loss. Other common types of accounting errors are duplication, entry reversal, omission and more. Manual data entry also results in incorrect data formatting and the misinterpretation of information.
- Inability to Manage Business Expenses
Recording and tracking expenses in a logbook or spreadsheet become difficult as the number of transactions increase. This becomes further problematic if you are operating in multiple locations.
It takes a lot of time to scan all receipts, manage the database physically. It is tedious to review all receipts and often lead to the error in tracking expenses.
Understanding where money is being spent is not easy, and there are chances of fraud too. In this system, employees can make false claims or misreport the numbers to get more money from the company.
- Cumbersome Invoice Processing and Payments Collection
In a manual account management process, you first enter the information to create an invoice. Then, you sort invoices, package them and send them to different destinations.
The longer it takes, the lesser is the chance to be paid by your clients on time. This often leads to cash flow issues that can cause the business to shut down.
- Inventory Mismanagement
Proper inventory management requires knowing the location and status of your goods in real-time. Manual processes make stock status tracking difficult for all types of items.
Incorrect stating of stock items results in inaccurate reporting of the cost of goods sold and the net income. If overstated, reporting the cost of goods sold will be less, and net income will increase. There will be errors in the income statement and balance sheet, which no business wants.
- Payroll Inconsistencies
Manually monitoring attendance data and making calculations for employee compensation has its flaws. This requires proper coordination, timely verification, and approvals.
Such a labor-intensive system is prone to bottlenecks and inconsistencies. It is difficult for the update the data in real-time. This means that you cannot get accurate information for financial analysis.
- Mistakes in Tax Filing and Audit
The manual accounting process does not ensure that you are entering valid details, making accurate calculations and deductions, and more. Constant tax reforms make it difficult to keep up, and you could be overpaying in taxes.
Manual accounting often means the lack of supporting documentation and overall visibility.
There will be an accuracy-related penalty for any unintentional discrepancies in a business’s financial statements during the audit. It can result in the loss of credibility among investors and other stakeholders.
How Can Accounting Software Help Overcome Business Challenges
Going for accounting software can save time, reduce errors, streamline business processes through automation, and help in making better decision.
You save money in the long run when compared to the manual accounting process. The software helps overcome the common accounting challenges in the following manner:
Better Expense Tracking: Accounting software lets you record and organizes every business expense. You have access to all the scanned, online receipts in real-time. This saves a lot of time and gets a better picture of areas to cut down on unnecessary expenses.
Fast & Accurate Data Entry: The outcome of employing accounting software for invoice processing is faster data entry and better accuracy with electronic validation. There is complete transparency of payment terms and improved maintenance of payment deadlines.
Managed Inventory: You can optimize inventory and manage the rise and fall in demand better. The data of items get updated in real-time through barcode scanning. By maintaining the proper history of inventory, you can further calculate net income correctly.
Payroll Management: The employee attendance system automatically calculates the number of working days and leaves taken. You will be notified of the latest tax updates and can generate automated payslips. Accurate payroll accounting with accounting software streamlines all operations and ensures accurate tax returns.
In-Depth Reports: With in-depth reports and smooth collaboration, tax filing becomes a simpler task. It is easy to perform audits and check for inconsistent patterns and anomalies in financial data. At the same time, you can remove old, unnecessary data that is no longer required.
Secured Financial Data: It is possible to restrict user access to sensitive information (like bank account numbers and passwords) and systems. This way, you can protect the data of clients, employees, and service providers, and only those authorized can access it.
Wrapping it up
Several best small business accounting software having numerous features and functionalities are available in the market. Choose the accounting software that meets the needs of your business and easy for your staff to use. Many businesses these days are opting for cloud accounting software too.
More Useful Accounting Application Links