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Bookkeeping Problems and Actionable Solutions

Weak bookkeeping will slow your response and increase the size and scope of your challenges.

By Gregory Brickner
September 8, 2020    •    8 min read
Why Your Business Needs Cash Flow Forecasting

Running a small business is hard enough in any economy, with GDP declining at an annualized rate during the second quarter of 2020 of 32.9%, this year is a fierce fight. Familiar business threats from weak product-market fit to competitor's pricing compound the pressure during tough times. Regardless of the market conditions, all businesses fail because they run out of cash. Weak cash flow will always be the biggest threat to the viability of your business.  Weak bookkeeping will slow your response and increase the size and scope of your challenges. 

Cash flow challenges can impact a company of any size. The cash squeeze starts when sales and revenue decline, but overhead remains constant. The rush of cash out the door does not stop unless the business leaders take the actions necessary to reverse the causes. Often the cash flow decline starts as a small leak. Many of the issues leading to failure originate from small missteps that compound into a crisis.

The business leader that can spot the issues early and takes quick and decisive action is often able to reverse the trend and save the company from collapse. The slowest leaders to respond to challenges are usually found at companies with weak bookkeeping. Numerous circumstances contribute to accounting and financial frustrations, including poor visibility into future cash flows, lack of timely financial statements, inadequate analysis of performance, and more. Business leaders do not need to accept these conditions as business as usual. With the right tools in place, these leaders can begin making better decisions and return to growing their firms.

Signs of Bookkeeping Problems

On the bright side we know many of the causes of a cash crisis for small business is avoidable. By being alert for the possible warning signs we can take swift action to help our company weather the storm. Our bookkeeping is the beginning point to study analyze the results of our business. Think of book keeping as the flour in our cake. If we have bad flour, the rest of our cake is going to be aweful regardless of how fantastic the icing is. Here are a few early warning indicators that we might have a bookkeeping problem:

  • Monthly financial statements not completed timely. If your bookkeeper isn't updating the books timely, this is going to lead to poor business decisions since the available data isn't current. How can you make a staffing, inventory, or equipment replacement decision if your financial information is not up to date? You are also going to lose revenue when you eventually have to fix this situation.

  • You have too much inventory and not the right inventory.  Having a tight sales to inventory order flow and system is critical to make sure you pull back in time when sales slow down and increase in time to fill orders when sales go up.  Inventory is a huge consumption of cash and your bookkeeping needs to provide a clear picture of the holdings and movement.  

  • Financial statement detail is inadequate for analysis.  When you have a business question it is important to be able to pull the details from your information systems to analze the situation.  If revenue and expenses have not been recorded in granular detail the analysis can be almost impossible.   Reviewing customer sales by product and expenses by sales channel should be routine excercises and only possible with quality bookkeeping.

  • Lack AR detail and slow paying customers. A company's accounts receivable needs to be record in detail by customer and each sale to the customer.  This detail allows for timely collection of the money due from the customer.  Also with this detail a business leader can review the accounts to determine the best and worst customers.   Often times customers pay late because they have been conditioned to by your bad AR collection processes.

  • You learn that you can't cover payroll. A priority of any business should be to pay its employees first. If discover that your company can't cover payroll and this comes as a surprise, someone has dropped the ball several steps in the past.

  • Hearing excuses instead of getting deliverables. If you are hearing excuses from a bookkeeper instead of seeing results, it's probably time to make a change. While every business has challenges, the future of your business is too important to leave something like this to chance.

Solutions to Common Bookkeeping Challenges

No one wants to wake up one morning to find that their business is on the brink of failure. This can be a heartbreaking realization, and it is compounded by the fact that there are some proactive measures you can take to ward off disaster. Whether you already see a few of signs of bookkeeping problems in your business or want to make sure that these never happen, some of the best solutions to these challenges include:

  • Technology. There is no reason for small businesses today not to embrace technology. It makes many tasks simpler and even completely eliminates some work through automation. If your bookkeeper is overworked due to their data entry requirements, you can take some of that burden away by allowing your bank, or other third-party, to automatically feed entries into your accounting or operations system.  The best solution is to use an accounting software solution that provides regular, automatic updates. One example is Xero, which operates and saves your data on the cloud.

  • Reporting.  Create a standard set of reports that your review at daily, weekly, monthly and quarterly intervals.  Asking questions about your business is the best way to drive better data collection at the bookkeeping step. Accurate information in a readable, understandable format is the foundation of good decision-making.

  • Training. Times change, and it would be a shame to fall behind or even lose your business because your accounting team has failed to stay up to date. You can keep them abreast of changes and ensure that you have the best staff on your team through several initiatives:

      • Instructional videos. Depending on interest areas and current skill levels, there are a variety of online training opportunities for bookkeepers. 
      • Engage a trainer/mentor. If a new state payroll regulation is passed or there are significant changes to the tax law (again), find an expert to come into your workplace to give a seminar on how these changes will impact financial filings and workflow. 
      • Formal education. Your company can also sponsor the continuing education of employees in the accounting field with programs like tuition reimbursement and pay incentives for advanced degrees.
  • Outsourcing. One of the best ways that you can ensure bookkeeping excellence is to outsource the function. This is particularly effective when you choose a partner or professional that has a level of skills.   Finive will take care of your books. 

Benefits of Addressing Bookkeeping Shortfalls

Bookkeeping isn't just another area of operations that needs to be dealt with or some administrative burden. It is a vital function necessary for the survival and growth of your business. Without accurate and timely books, you have no numbers to review, and without that point of reference, your company can't accomplish basic tasks such as paying employees and filing tax returns.

Putting the spotlight on these shortfalls and taking steps to correct them should be a top priority for any business. When you set aside the time and resources to do this, some of the benefits your business will receive include:

  • Visibility to the company's cash position. One of the primary reasons that businesses fail is problems with cash flow. When you get a handle on your company's bookkeeping shortfalls, you will instantly know where you stand with respect to your cash position at all times.

  • Opportunity to make more timely and better-informed decisions. Better and more timely information translates to healthier business decisions. Your company makes more informed choices about adding new product lines, bringing on new staff, or investing in equipment.

  • Improved banking and vendor relations. When your accounting function is suffering, your relationships with business partners will deteriorate as well. You can turn this around and strengthen these bonds, which can be a catalyst for business growth.

  • Accurate and timely data for strategic initiatives. The strategic direction of your business will determine its level of growth and financial success. When you have timely and accurate data from your bookkeeping team, you will be able to create the strongest strategic plan possible for your company.

Businesses don’t have to settle for mediocrity. They can have a stronger position and healthier operations when financial statements are on time, and on point. A competitive advantage can often be gained when financial performance is reported like clockwork. Affordable solutions are available to help business owners take control of their finances, make better decisions, and increase their profitability. 

Team Contributor


Gregory Brickner

CFO

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