Financial accounting and bookkeeping can be challenging tasks for Small and Medium Businesses (SMBs). Any misstep can cause serious issues that can cause multiple repercussions. However, you can use those mistakes as stepping stones to identify potential issues that may arise in the future, and work towards preventing them from occurring.
Here are four main financial and bookkeeping issues that need to be overcome to ensure a steady flow of revenue for your company.
1. Issue –Undercapitalization
One of the most oft–repeated missteps by growing companies is undercapitalization. Irrespective of the size of the company, this problem can afflict businesses. Even when cash flow is sufficiently available, sometimes it takes only one delaying client with high billables to do the damage.
Solution – The risk of undercapitalization can be avoided by being more conservative in the project estimates (the strategy is to usually double the estimated amount).
2. Issue– Lack of Diverse Clients
The main problem of undercapitalization occurs because there is diversification lacking in the client base. It occurs when too much of the income is dependent on a single client.
Solution – Having a diverse client base and introducing intermittent invoicing can help realize cash flow on a regular basis.
3. Issue– Diversification Too Soon
As the client base increases, other expenses such as recruitment, software purchases, new office space, etc., can increase the cost factor. Most often, expanding as soon as there is a cash build can only lead to cost overheads, and dilute the cash flow that is currently available. New expenses may be hard to cover when it is not strategically executed.
Solution – Conservative forecasting and carrying out expansion until the cash flow becomes steady can lead to better revenue build.
4. Issue– Inaccuracies in Accounting
Accounting and bookkeeping errors occur all the time – omissions, transposition, reversals, and more. Sometimes these errors may not affect the final financial statements. However, if they occur consistently, they can lead to legal ramifications in the future.
Solution – If losing track of the accounting numbers happens often, then it’s time to consider the services of an external bookkeeper.
Finance managers need to examine the underlying factors that affect their company’s finances to understand the root cause of the above issues. Choosing to work with an external partner has a number of benefits. A third-party accounting and bookkeeping service provider can dedicatedly manage all the accounting tasks, leaving room for other business activities to be pursued. SMBs can enjoy services ranging from accounts payable, to expense classification, and the generation of final financial statements.
Want to keep your business financially healthy? SmartFin can help you get started. We have over ten years of experience in providing end-to-end accounting and bookkeeping services for clients across the globe. With your accounting taken care of by our experts, your business operations can run smoothly with no unforeseen financial errors or missteps. Get in touch with us if you would like to explore working with us.