Accounting Challenges in Small Business


Small businesses are focused on getting product or services out and mastering and growing their business. They know they need to consider money – it feeds further investment and is at the core of any for profit business. They quickly recognize they need a tax expert and generally take the time to partner with someone that can help them with that challenge. Before long they know that time is a resource that is more constrained and sensitive than even money so they will find a book-keeper too.




They fall short when it comes to actual accounting. The tax is covered. The data entry is getting done. Here are five challenges that remain. I encourage all small businesses to consider the three solutions if these challenges resonate with them.




  1. Cashflow


Access to lending and equity is limited in the early days. All size businesses can struggle with the timing of cash inflows and cash outflows. Ironically it is fast growth that amplifies cashflow challenges. Sales are souring and revenue looks great but the cash hasn’t come in meanwhile the expenses and cash outflows that funded those products and services are long past due. You need to pay before you collect and as you grow collection can become an art and not a science. All of this is further amplified if you do not have reporting or forecasting that let’s you estimate what is coming.




  1. Culture & financial reporting


In the early days an entrepreneur has their ‘finger on the pulse’. They can rely on their ‘sixth sense’ and the skills and insightfulness that got them to where they are. They are on site and they can ‘feel the vibe’ and see what is happening and where the challenges are likely to pop up. In these early days excessive reporting and financial information is redundant. It tells them the historical reality of what they already knew weeks ago. Paying the book-keeper, who generally is not an expert in strategic forecasting and insightful analytics for financial reporting does not seem like a good investment. This tone at the top becomes prominent with senior management and leaders that work closely with the owner.




While there is truth to all of this when you are small enough to have a transparent view of the business we find that growing businesses will go without financial reporting and reliance on budgets, review of actuals and use of forecasting and dashboard and financial analysis long past when they have their ‘finger on the pulse’. You simply can’t be at multiple locations or in touch with multiple clients so successful small businesses outgrow their lack of financial reporting quickly and then struggle with the resulting culture that was defined.




  1. Scalable


Investing in the back office is not an obvious choice or the best use of cash in any size entity. Small businesses are no exception, they cringe at the thought of spending hard earned money on accounting. Similar to the culture and financial reporting they generally don’t get a return on investment when they can rely on their ‘gut’ but if you want the cost of your 1000th transaction to be the same as what it cost when you did 10 investing in a practical manner that builds scalable processes is worth considering.




  1. Strategic Business Partnering


An accountant or finance leader is more than a number cruncher or a tax expert or book-keeper. All of those things are very important but a growing entity needs a strategic business partner that understands finance and accounting and can bring that insight into the big decisions. A challenge that small business often face is that they think their tax accountant or their book-keeper or their compliance person can cover this role but that is generally not the case and raising funds, negotiating banking and lending, managing stakeholders and forecasting and modeling growth is an area that can be challenging if you don’t have the right person focused.




  1. A Revenue Perspective


A modern finance leader is focused on revenue. Generally a business owner is also looking at sales and the top line too. Gone are the days where your finance leader is the ‘no man’ that is fussing constantly over costs. Gone are the days that they can’t see the entrepreneur’s vision and the possibilities of the new location, service or product but rather over-rotates on the risk and cost. Yet many small businesses rely on number crunching accountants that see that as their role. A modern finance leader is going to balance cost and risk (still relevant and important) but will be focused on revenue, key performance indicators and future-oriented reporting.




Each of these challenges are normal. Most in small business will run into these problems at some point. I once had a client ask “Is it normal that we are so screwed up?” The answer was yes! Investing in back-office is not an easy choice. Knowing when you have outgrown what use to do the trick is not easy. I encourage small businesses and even start-ups to mitigate these challenges by considering these three solutions.




  1. Finance Leader – a small business might not need a CFO/Controller to support their tax expert and book-keeper full-time and generally these salaries are not insignificant so the cost of full-time leadership would be a burden. Virtual, interim, part-time CFOs are becoming common because they offer the flexible support that matches the needs and budget of their clients. Investing in this matter would ensure you were well equipped with the cashflow forecasting and reporting that you need. The business partnering would give you the opportunity to automate and set yourself up for growth in a cost effective manner. It ensures you have a business partner to discuss strategy, revenue opportunities and other matters while being armed with the financial reporting that allows you to envisage your complete financial picture.
  2. Automation - With the support of a finance leader, or even driven by a strong book-keeper today’s cloud accounting allows you to set up in an automated matter that is scalable for your growth. The implementation and costs are minimal and you can ‘plug and play’ which allows you to grow and not build up a bigger accounting team along the way. Set up correctly you no longer need a new Accounts Payable clerk for each location (or other growth). “There’s an app for that” and you can get reliable processes and information easily if you take the time to set it up.
  3. Financial reporting – A finance leader and an automated approach to accounting is going to make financial reporting much easier. Start early and use financial information to support what you know and to give you the insights you need. Create a culture where they are accountable to their budget and they understand their results. Work with a dashboard that visually shows your team the key performance indicators that you and your stakeholder measure your business by. Use cash flow forecasting to get ahead of your timing and growth challenges.




Companies of all sizes struggle at times with accounting. Finance departments are one of the most expensive functions in a head office of even the largest public entities. The opportunity for a small business is to set up in a practical manner early rather than allow the challenges to build up. The opportunity to envisage your complete financial picture will allow your growth to amplify.


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