It is common for startups to face many challenges in the first few months—or even years—of operations, particularly in accounting. Some of these challenges might be unexpected, but many are predictable and preventable.
If you are planning your startup or have already launched it, here are some of the most common accounting challenges you might face and how to address them:
1. Non-separation of personal and business finances
The CPAs at Your Finance Department can attest to the fact that failing to separate your personal and business accounts is one of the biggest mistakes you can make as a small business owner. Why? Because when your personal and business transactions are all in one account, it is difficult to determine which entries are for your business and which ones are under your personal use.
This mix-up can lead to legal and financial issues, not to mention the time wasted on separating each entry. Moreover, there is no guarantee that you will remember every entry on your transaction history. Hence, it is wise to set up separate bank accounts solely for business purposes before you start operations.
2. Mistracking financial information
When the accounting department of your startup consists of only one or two persons, which is typical for small businesses, it is difficult to stay on top of accounting information without reliable software. Therefore, prioritize the purchase of excellent accounting software to help your startup track information, monitor and optimize cash flow, create sales data, and perform other crucial accounting tasks.
3. Handling petty cash poorly
Petty cash is used to make small purchases, which is something that a lot of startup owners do on the daily. However, petty cash is often poorly tracked, especially when you are busy taking care of something else. As a result, your business might be losing a significant amount of money over time and creating inaccuracies in your financial reports.
To avoid this problem, make it a point to document each small purchase, whether it is made with cash or with a purchase card. In this way, you have a record of each purchase, which will make a lot of accounting tasks much easier, particularly during tax season.
4. Neglecting payroll taxes
Payroll is another crucial accounting task that many startup owners have difficulty with. Aside from making sure that payroll is accurate for the sake of your employees, you also have to prepare payroll taxes. And if you don’t calculate your taxes accurately and make payments on time, you can face high fines.
Be proactive and learn about the local laws regarding payroll taxes before launching your startup. If your business can’t handle the payroll by itself, outsource a third-party service to do it for you.
Lastly, perhaps the biggest challenge that you might face as a startup owner is handling everything by yourself. Although you might be saving money by being your own accounting department, the mistakes you make can cost you even more.
So don’t risk it. If you want your finances to be accurate and organized, hire an accountant or outsource your accounting tasks to a reputable finance company.