The CFO'S Perspective

Common Small Business Bookkeeping Problems and Solutions


It's a tough environment for small businesses in the United States, particularly new ones. The Bureau of Labor Statistics reports that almost 20% fail in their first year and only about half make it to five years. The threats are piling up, and they range from failing to find a viable product or service to customer service gaffes and even cybersecurity issues. But some of the biggest problems that small businesses face are financial in nature.

Financial woes can impact a company of any size. 2018 marks the 10-year anniversary of the height of the financial crisis when regulators walked into Seattle's Washington Mutual and shut down one of this nation's largest regional savings and loans for good. Few longtime area residents have forgotten the impact that Frederick & Nelson had on the area's retail scene, before becoming victim to some strategic and financial missteps. Whether a company is large or small, public or private, many of these issues begin at the granular level.

Small businesses can be adversely impacted by bookkeeping challenges. Many circumstances contribute to accounting and financial frustrations, including lack of visibility into upcoming cash flows, consistently late financial statements, and more. But it doesn’t have to be that way. Affordable solutions are available to help business owners take control of their finances, make better decisions, and increase their profitability. Even better, these solutions can ensure that your company doesn't become just another statistic.

Signs of Bookkeeping Problems

The good news is that many of the causes of small business failure are completely avoidable. This is particularly the case when it comes to the financial and accounting side of the equation. If you are paying close enough attention, you should be able to spot some of the warning signs that your business is in trouble. Some red flags that you have bookkeeping troubles include:

  • Unsuccessfully applying for bank funding. Your company's inability to secure bank funding can be a signal of several issues. Your bookkeepers may be applying to too many places at once, may not be able to follow application instructions, or might not have the data available that is requested. Or worse, your finances might be in such poor shape that you simply don't qualify.
  • Accounting reveals that you can't cover payroll. A priority of any business should be to pay its employees first. If accounting reveals that you can't cover payroll and this comes as a surprise, someone has dropped the ball several steps in the past.
  • Out of compliance with loan covenants. When your company borrows money, the loan often comes with stipulations which, when violated, can get your company into hot water with the lender. There are three types of loan covenants. (1) Affirmative, which require 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 require you to maintain certain performance or liquidity ratios. If you violate a stated covenant, a lender has remedies that might include calling in the loan or seizing assets posted as collateral. Your bookkeeping function should help ensure that these events don't occur.
  • A lack of clear, repeatable monthly closing processes. When your bookkeeper's monthly closing processes are haphazard, there's a good chance that something is going to be overlooked. This could create a snowball effect of errors leading to financial disaster. There could be unreconciled accounts, missed expenses, mistakes in payroll, and other errors that will be difficult to correct down the road.
  • Monthly financial statements not completed timely. If your bookkeeper isn't updating the books timely, this is going to lead to poor business decisions since the available data isn't current. How can you make a staffing, inventory, or equipment replacement decision if your financial information is not up to date? You are also going to lose revenue when you eventually have to fix this situation.
  • Hearing excuses instead of getting deliverables. If you are hearing excuses from a bookkeeper instead of seeing results, it's probably time to make a change. While every business and department has challenges, the future of your business is too important to leave something like this to chance.

Solutions to Common Bookkeeping Challenges

No one wants to wake up one morning to find that their business is on the brink of failure. This can be a heartbreaking realization, and it is compounded by the fact that there are some proactive measures you can take to ward off disaster. Whether you already see a few of signs of bookkeeping problems in your business or want to make sure that these never happen, some of the best solutions to these challenges include:

  • Technology. Many early-stage and even established small businesses continue to track and manage their financials using antiquated tools like Excel. This might work in the opening days of a startup, but most companies need a more robust system. The best solution is to use an accounting software solution that provides regular, automatic updates. One example is QuickBooks, which operates and saves your data on the cloud.
  • Automation. There is no reason for small businesses today not to embrace technology. It makes many tasks simpler and even completely eliminates some work through automation. If your bookkeeper is overworked due to their data entry requirements, you can take some of that burden away by allowing your bank, or other third-party, to automatically feed entries into your accounting or operations system.
  • Training. Times change, and it would be a shame to fall behind or even lose your business because your accounting team has failed to stay up to date. You can keep them abreast of changes and ensure that you have the best staff on your team through several initiatives:
    • Instructional videos. Depending on interest areas and current skill levels, there are a variety of online training opportunities for bookkeepers. For example, Quickbooks has free training courses that can even lead to a certification.
    • Engage a trainer/mentor. If a new state payroll regulation is passed or there are significant changes to the tax law (again), find an expert to come into your workplace to give a seminar on how these changes will impact financial filings and workflow. Your company can also establish a mentor program to help junior staff become better bookkeepers and future managers.
    • Formal education. Your company can also sponsor the continuing education of employees in the accounting field with programs like tuition reimbursement and pay incentives for advanced degrees.
  • Outsourcing. One of the best ways that you can ensure bookkeeping excellence is to outsource. This is particularly effective when you choose a partner or professional that has a higher skill level. At Accounting Solutions Partners, we connect clients with part-time bookkeepers and accountants whose proven skill level means that the work is accomplished faster and more accurately.

Benefits of Addressing Accounting Department Shortfalls

Bookkeeping isn't just another area of operations that needs to be dealt with or some administrative burden. It is a vital function necessary for the survival and growth of your business. Without accurate and timely books, you have no numbers to review, and without that point of reference, your company can't accomplish basic tasks such as paying employees and filing tax returns.

Putting the spotlight on these shortfalls and taking steps to correct them should be a top priority for any business. When you set aside the time and resources to do this, some of the benefits your business will receive include:

  • Visibility to the company's cash position. One of the primary reasons that businesses fail is problems with cash flow. When you get a handle on your company's bookkeeping shortfalls, you will instantly know where you stand with respect to your cash position at all times.
  • Opportunity to make more timely and better-informed decisions. Better and more timely information translates to healthier business decisions. Your company makes more informed choices about adding new product lines, bringing on new staff, or investing in equipment.
  • Improved banking and vendor relations. When your accounting function is suffering, your relationships with business partners will deteriorate as well. You can turn this around and strengthen these bonds, which can be a catalyst for business growth.
  • Accurate and timely data for strategic initiatives. The strategic direction of your business will determine its level of growth and financial success. When you have timely and accurate data from your bookkeeping team, you will be able to create the strongest strategic plan possible for your company.

Businesses don’t have to settle for mediocrity. They can have a stronger position and healthier operations when financial statements are on time, and on point. A competitive advantage can often be gained when financial performance is reported like clockwork. Affordable solutions are available to help business owners take control of their finances, make better decisions, and increase their profitability. 

About the Author

Eric-Moore-practice-managerEric Moore is the Practice Manager of Accounting Solutions Partners. He brings two decades of progressive experience in Controller, CFO, and General Management roles with privately held companies, and has a broad perspective from working in environments ranging from start-ups to multi-generational mid-market companies with revenue in excess of $100M.

As Practice Manager, Eric is responsible for managing the consulting teams for Accounting Solutions Partners in all markets, for setting and executing business strategy, and acting as the primary client manager for all engagements. His experience as a consultant with both Accounting Solutions Partners and CFO Selections, as well as his previous time in general management, make him uniquely qualified to lead the firm.

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