How to Assess Your Small Business’s Accounting Resources
A new survey indicates that small businesses may be skimping on their accounting resources, impeding their financial success. Discover what resources small businesses use to manage their finances and how they can improve.
Most small business owners don’t begin their business for the thrill of sending invoices, calculating expenses, and creating financial forecasts.
Yet, proper accounting is a vital aspect of any successfully-run small business. You may love to sell your unique product or service, but if you aren’t properly managing your finances, your business may suffer.
A recent survey found that small businesses may be lacking accounting expertise. Analyzing the data, this article explores the resources small businesses are using for their accounting and what they can do to improve.
Many Small Businesses Employ Neither an Accountant Nor a Bookkeeper
At 45%, the largest percentage of small businesses in the survey say they do not employ an accountant or a bookkeeper. A quarter employs an accountant only.
Small businesses with limited resources may struggle to justify the expense of hiring accounting staff. Yet, if the small business does not have any other employees with significant accounting expertise, then the expense of hiring accounting staff may be nothing compared to the money they could be losing through improper financial management.
At the very least, small businesses should at least be hiring a bookkeeper, according to Wanda Medina, a managing partner at Maventri.
Bookkeepers keep track of day-to-day financial transactions. Mistakes in bookkeeping can lead to missed invoices or late bill payments.
Even massive companies with large accounting staff make mistakes. Consider how in 2014, car rental company Hertz made public that there was $46.3 million worth of errors in its 2011 financials. That same year, Bank of America overstated its available capital by $4 billion.
While small businesses are unlikely to face such huge error margins, it just goes to show – even with the proper help, mistakes can be made. Yet, ensuring you have the proper expertise on hand can minimize the risk of errors.
What Can Help Small Businesses Better Manage Their Accounting?
There are two cost-effective solutions that can help resource-strapped small businesses with their accounting:
- Software solutions
- Outsourced accounting
Software may seem like an obvious choice, given the plethora of choices on the market, from QuickBooks to Wave.
Yet, 25% of small businesses say they are still recording their finances on paper. This choice exposes their finances to greater risk of human error and physical damage.
Natural disasters continue to wreak havoc – consider hurricanes Florence and Michael and the Mendocino Complex Fire in 2018 alone. Paper financial records can disappear in an instant.
Switching to a software solution – specifically one that backs up to the cloud, so it can be accessed anywhere – can better protect your financial records.
Accounting software can fall into a number of different categories, including:
- Billing and invoicing systems
- Payroll management systems
- Enterprise resource planning systems
- Time and expense management systems
In a positive sign, the largest percentage of small businesses say they are recording their finances with online software.
Software can simplify the process of accounting, walking small business owners through potentially complex tasks and crunching numbers for you.
Yet, sometimes a small business still needs human help. However, they may not be able to afford hiring in-house full- or even part-time accountants and bookkeepers.
“Most small businesses need a combination of a controller, an accounting manager, and a [bookkeeper],” explained Rhett Molitor, co-founder of Basis 365 Accounting. “How do you get that? You can’t really hire part-timers for each level of skill, so you hire the highest level and overpay. Small businesses may not be able to afford that, so we usually see them under-hire.”
This is where outsourced accounting can help. Outsourced accounting firms can offer a small business only the help they need when they need it. Furthermore, small businesses do not have to deal with turnover – if an accountant leaves, the firm will replace them, not the small business.
Small Businesses Should Take Stock of Their Accounting Resources
Small businesses may not consider adding to their accounting resources until a major mistake or obstacle happens.
This isn’t the best path toward financial success, though. Small businesses should carefully consider their accounting resources from the very beginning to ensure their business achieves maximum growth.
Maventri and Basis 365 Accounting both have profiles on Clutch.