Government statistics state nearly 20% of small businesses fail within a year they start. One of the critical reasons for the failure is the lack of proper bookkeeping by the accounts department. There is no adequate record of the expenses, earnings, profit, and future forecast leading to business failure.
Small businesses can smell their accounts maintenance needs revision if
a) Taxes don't get paid on time
b) There isn't enough money to pay the employees
c) The monthly financial statements are a mess.
Every transaction done in the company from day one must be recorded clearly by an accountant or the business owner. If there is a dedicated accounts team, the business owner should spend a few minutes daily to ensure the work is done by supervising their activities.
According to TaxFortress, Failure to pay bank debts and tax levy occurs only if the accounts are not maintained properly. Due to inexperience or lack of resources, small businesses often ignore the importance of recording daily transactions. They ignore the tax payment dates and fail to calculate whether there is enough money for debt payments, etc.
No clarity on expenses
Most small businesses start with a stringent investment and try hard to make ends meet until they set up a good client base. Lack of transparent bookkeeping complicates the issues drastically, and they do not know how they lost their money. The accounts team must record every client acquiring expense, supplier invoices, and daily miscellaneous costs.
Maintaining good bookkeeping creates an overlap between expenses and earnings, resulting in tax miscalculation. A company accounts team must always stay updated on the essential expenses plus gains and keep the owner updated about the financial situation. None of this is possible without clear records of the daily transactions.
The key to several accounting issues is missing to record important purchases and spending. The accountants must close every day only after recording every small purchase and expense for the day. Failure to log in purchase details and maintain bills or vouchers results in significant confusion at the end of the month.
Accountants cannot create a clear monthly statement because they miss some key purchases when they work at the last minute. It results in messy statements, unclear records, and confusion about how the money disappeared. Accountants must get trained to avoid such mistakes and maintain precise records easy for retrieval at any moment.
Loans obtained must be paid on time, or the penalty for them will keep increasing. Insurance, renewals, and taxes must get paid on the date, and forfeiting to do so will result in heavy fines. Accountants who fail to maintain proper records often miss the deadlines for payments. It results in extra charge through auto-debit and wrong statement speculations.
The accounts team must not give any excuse when paying the dues on time. Their primary duty is to keep the owner updated about the essential payments. Any mess-up or violation in this area leading to unwanted fines or wrong calculations is a severe sign of incompetent bookkeeping.
Slow and erroneous process
The monthly closing must be precise with statements that do not conflict in any area and clear documentation. The accounts team might use old ways to maintain accounts and transactions, leading to human error and forgetfulness. It is better to automate the due payment process and use advanced accounting software to track every penny.
Modernizing the accounts system helps in preventing loopholes and controlling miscalculations to a great level. Small businesses can understand their accounting team needs a remodel with new IT infrastructure if they are slow, use outdated methods and make frequent mistakes.