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Accounting Challenges for SMEs
In a call we had with a client earlier this year, they described running a small business as ‘playing on hard mode’. It’s probably not the term we’d use, but they definitely have a point; the challenges small businesses face with their accounting are unique.
Yes, national and international scale businesses have many more moving parts to keep an eye on, but there’s a support network in place to help you do just that.
A small business might have one person responsible for their bookkeeping, payroll, tax records, and business development, possibly with an assistant (who might only be part time), and possibly on top of another role with all of its attendant responsibilities. For sole traders, this is even more obviously the case (although we’ll admit payroll is a little simpler for a business with one member of staff!)
To add to this, small to medium sized enterprises (SMEs) typically have fewer reserves than the big names in their industries. Taken together, that makes fewer opportunities to spot if an error has been made, and a greater risk taken if one slips through.
So what do we recommend you keep your eye on?
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What Challenges Should You Be Ready for in SME Accounting?
It’s too easy to answer ‘keep an eye on everything’, even though that’s the answer. In any case, there are some clear front runners:
- Billing Cycles
- Expense Tracking
- Cash Flow
- Accurate Financial Reports
- Tax Obligations
- Maintaining Compliance
- Payroll
Many of these affect one another, but they’re all worth thinking about in their own right. Let’s look at why.
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Billing Cycles
In an ideal world, when you provide a client with an invoice, it will be paid on time every time. In practice, your clients will often miss payment dates, often for good reasons, sometimes by a significant amount.
Tracking billing cycles is the best way to plan your chasing for any income that hasn’t yet arrived. This is a key step in managing your cash flow, and can be vital for meeting your own obligations. Tracking cycles and chasing payments can take a surprising amount of time.
Expense Tracking
At the other end of the cash flow cycle, when you need something, especially something relatively cheap, in a hurry, you’re obviously going to buy it.
But all of these payments add up, and if you don’t keep track of them you can quickly find the business has much worse cashflow than expected (and is much less profitable into the bargain). When the business buys something, make sure that’s tracked. Get into the habit of filing receipts and invoices somewhere you can easily find them – it will make this much easier.
Cash Flow
A business lives and dies on its ability to pay staff, suppliers, tax obligations and creditors in a timely fashion – and that makes your cash flow vital. Managing your billing and keeping track of your expenses together help you master your cash flow.
But how do you know how much liquidity you’ll need at any given moment?
Accurate Financial Reports
Making financial projections, keeping track of tax obligations through the financial year, and even something as simple as checking whether or not your business is profitable – all of these need accurate financial data. Your business records are the source of that data.
These will allow you to keep track of any upcoming payments you’ll need to make, helping you to manage your cashflow.
Providing Independent Financial Advice In Lancashire
Tax Obligations
Keeping track of tax obligations through the year doesn’t just make your life easier in tax season, it helps you make decisions through the year. Make sure you’re not just tracking your obligations; you should also have an eye open for allowances you would qualify for, as well as ensuring your records are up to date and fully compliant.
Overpaying tax can obviously cause problems for a small business, but once it’s discovered, underpaying taxes can be worse.
Maintaining Compliance
Financial regulations and legislation evolves every year, and making sure all official documents to be submitted are compliant is essential. As with your tax returns, this is much easier to do by keeping up to date over the course of the year than by doing it all just before deadline, so we very much recommend that method.
Payroll
Making payroll every month can add an extra complication to your cashflow – you need enough to cover it in the business account on payday, after all, so the money has to be there for a specific date.
You should also keep in mind the possibility of errors, especially if anyone working for you has commission based pay or works unpredictable hours. A mistake can lead to financial difficulties or employee resentment – and neither is good.
Supporting Small Business
While the above is a challenging and time-consuming list, it can be done even when you have other duties. However, if you’re looking to save time and ensure peace of mind, a dedicated accountant is one of the best solutions – and we can often find efficiencies that could be missed without the same experience. Why not get in touch so we can discuss your needs?
Professional Accounting And Financial Advice
Contact TRW Accountants
Address:
TRW Accountants
95 King Street
Lancaster, LA1 1RH
Contact Details:
Tel: 01524 64187
Fax: 01524 60029
Email: office@tr-w.co.uk
Registered in England and Wales. Registered office – as above. Company registration 03851905
