Lack of planning for unforeseen costs
Unforeseen costs can derail even the best-laid plans for a small business. Your firm will have a cash reserve that can carry you through tricky times—or help you develop when the timing is right—if you have a separate account in which you accumulate a rainy day fund.
The process follows: During prosperous times, contribute what you can to the account and watch it increase over time. To avoid doing it manually, you may set up automatic transfers from your business checking account to its savings account. This way, the money is still there if you need to withdraw it.
A rainy day fund has the benefit of helping you reduce debt, lower interest costs, and bring us to our next difficulty.
Ignoring required reporting
All financial transactions for small firms must be documented frequently with a bookkeeper’s assistance. Sales, costs, and earnings are among those things. Private businesses are exempt from reporting financial information; however, poor record keeping can cause significant issues. Inaccurate tax filings and deductions may incur penalties, interest fees, or even jail time.
Financial losses and wasted time trying to rectify issues can result in publicly traded corporations failing to publish economic data or filing inaccurate reports.
Accurate reporting is essential when submitting tax forms required by local, state, and federal taxing authorities—and maybe other regulatory bodies, depending on where your firm is located. The corporation risks fines and other penalties if reports are not submitted on time.
A snowball effect can result from inaccurately recording transactions, harming monthly cash flow and impacting other financial reports. Additionally, this will provide you with severe issues with auditors.
Some business owners utilize automated methods to manage this area of their businesses, while others make reports using data pulled from spreadsheets and receipts. Companies receive more than just automated, precise financial statements with a dedicated ERP system. A contemporary financial reporting solution offers real-time financial modeling and analysis across all business dimensions for in-depth perceptions of organizational performance and enhanced decision-making.
inadequate tax compliance
Cash management is challenging enough as it is; there is no need to make matters worse by paying the IRS more than necessary. Nevertheless, up to 85% of small firms overpay their federal income taxes annually. Others underpay and get in trouble with the IRS or government agencies. Both issues require time, money, and effort to resolve.
Not paying federal taxes is one of the main problems businesses have to deal with. It is the price of complying. Additionally, small enterprises are affected by this load more severely than their larger counterparts. The IRS estimates that businesses with less than $1 million in annual revenue are responsible for approximately two-thirds of compliance costs.
Bills not being paid on time
Utility companies, renters, and suppliers all prompt desired payment. A small business might lose a lot of money if payments are frequently made late, even though the occasional late fee might be missed. A company’s financial health can be significantly impacted by strained supplier relationships, being cut off from necessary services, and consistently falling behind on debt payments.
According to PayStream Advisors, about 55% of businesses still manage their accounts payable (AP) procedures by hand. That takes time and is prone to fraud and errors. An automated system saves a lot of money and time, reduces data entry errors, and assists in preventing fraud thanks to a set of “touchless” controls that operate in the background. Combined, these features result in significant advantages for businesses using accounts payable automation software.
Software for automating accounts payable reduces the amount of manual work that finance personnel must do. For instance, firms can utilize an automated system to submit bills, handle invoice approval, and deliver payments to suppliers instead of manually monitoring vendor invoices and recurring expenses.