In today’s competitive business landscape, startups and small businesses drive innovation and competition. However, entrepreneurs often face a myriad of challenges that can hinder their path to success. Accounting hurdles, in particular, can be daunting because they directly impact the financial health and viability of a business.
Accurate financial reporting and compliance with tax regulations are not only legal requirements but also critical for informed decision-making and strategic planning. Lack of knowledge or understanding in this area can lead to penalties, cash flow issues, or even business failure.
In this article, we will explore 12 common accounting challenges that UK businesses often encounter and offer practical strategies to resolve them:
1. Leveraging data analytics for critical decisions
The rise of Big Data has made it possible for businesses to gain insights from their financial data that were not previously accessible. Data analytics can identify trends, patterns, and anomalies in financial data, which can help make informed business decisions.
No wonder many businesses have moved from following traditional accounting practices to deploying smart software solutions like Xero and FreeAgent that not only automate the tedious processes of bookkeeping and payroll but also reveal unnecessary expenses that can be reduced, or highlight successful products or services that could be further capitalised on.
Such solutions can also unveil potential risks, like consistent late payments from a particular client, thereby allowing businesses to mitigate potential financial pitfalls.
2. Adapting to ever-changing regulatory standards
The UK’s regulatory landscape continually evolves, affecting accounting standards and tax laws. This dynamism can be overwhelming, especially for small and medium-sized enterprises lacking the resources to stay abreast of these changes.
To address one of the most common accounting challenges, invest in ongoing professional development and training for your in-house accounting staff. Alternatively, taking the help of reputable accounting specialists like Lyel Accountants can provide your business access to expert knowledge and up-to-date information.
3. Integrating sustainability into accounting
As environmental sustainability continues to gain attention globally, businesses are rethinking their operational practices to minimise their environmental impacts. One effective method is the adoption of paperless accounting systems.
This transition not only reduces the carbon footprint significantly but also enhances efficiency and cost-effectiveness in accounting operations. The journey to paperless accounting begins by digitising all financial records and documents.
This practice saves physical space and aids in environmental preservation by decreasing paper consumption. Additionally, the utilisation of cloud-based accounting software enables easy access to information, facilitating more efficient communication and decision-making processes.
As a result, integrating paperless accounting can significantly contribute to sustainability and environmental conservation efforts of a business.
4. Tracking and recording business expenses
Monitoring and recording business expenses is critical for any successful business. Understanding the different types of expenses incurred, ranging from rent and utilities to employee salaries and travel expenses, is especially important for budgeting and tax purposes.
However, accurately identifying these costs can be tedious, especially for larger businesses. That is where utilising expense tracking software or apps is a smart move. They help centralise expense reports, categorise expenses automatically, and simplify receipt management.
Tools such as QuickBooks, ExpensePoint, or Dext offer an easy way to document expenses promptly and accurately, minimising the risk of misplacing receipts or forgetting to log an expenditure.
Besides, deploying a clear expense policy is fundamental to ensure employees understand permissible expenses and reporting procedures.
At Lyel Accountants, we are committed to helping businesses like yours streamline the process of tracking and recording expenses. Our team of professionals is equipped with the knowledge and tools necessary to guide you through this essential aspect of your business operations.
Whether you need help setting up an efficient system, crafting a detailed expense policy, or ensuring your records remain accurate and up-to-date, we are here to assist.
5. Establishing robust accounting processes
During the initial stages of a business, there is often a tendency to ignore the need for solid accounting processes. Startups often put off implementing these crucial systems in favour of concentrating on immediate revenue generation, viewing them as bureaucratic hurdles that will not contribute to profit.
However, this mindset can prove costly and further add to the pile of common accounting challenges. The absence of a robust process might result in significant issues like unpaid invoices, stalled projects due to delayed client responses, and lost revenue due to last-minute cancellations without a cancellation policy in place.
Therefore, establish clear terms and conditions, firm contracts, and a robust onboarding process. Embrace accounting software to streamline financial processes and efficiently manage invoices, payments, and expenses.
We can, for instance, provide significant help in establishing robust accounting processes. We can deploy Xero, a widely-used cloud-based accounting software. Its live bookkeeping functionality ensures your financial data is always accurate and up-to-date, thereby reducing errors and freeing up your time.
Additionally, we can help streamline tasks such as invoicing, payroll, and expense tracking on the accounting tool and make sure you periodically get comprehensive management reports about your financial health.
6. Maintaining precise financial records
Many businesses struggle with maintaining precise records due to a lack of time, understanding, or an overwhelming volume of transactions. This can lead to issues such as incorrect financial reporting and tax implications.
In such a scenario, leveraging accounting software can be a game-changer, as it can streamline the process, reducing the chance of human error. Our knowledgeable team can introduce and implement robust accounting software like Xero, QuickBooks, or Sage, making record-keeping much more efficient for your business and reducing the likelihood of errors.
In addition, Lyel’s bookkeeping services can ensure regular updates and reviews of these records, helping you catch and rectify any discrepancies early on. You could also benefit from our bookkeeping services for expert assistance and thwart such common accounting challenges early on.
7. Planning for unforeseen contingencies
Unforeseen events like natural disasters, pandemics, or economic downturns can severely impact finances and are hence considered one of the common accounting challenges.
Many businesses often fail to account for such contingencies in their financial planning. Do not be like them. Instead, build a contingency plan that outlines steps to mitigate financial damage in a crisis.
This may involve setting aside emergency funds, diversifying income streams, or securing insurance coverage. Regularly reviewing and updating this plan is also essential as the business environment and potential risks evolve.
8. Dealing with the complexities of VAT
The VAT system in the UK is intricate with varying rates and exceptions, which can confuse businesses. Misunderstanding it has the potential for costly errors.
Engage a VAT accountant who can navigate the intricacies of the VAT system. This approach ensures compliance and helps to avoid penalties associated with incorrect VAT submissions. Adopting VAT-optimised software can further simplify and streamline the process.
9. Managing intricate payroll systems
Payroll involves more than just paying employees; it includes tax withholding, benefit deductions, and legal compliance. Mistakes in the function can have significant legal and financial consequences, let-alone upsetting your employees.
Identifying the right software to automate the process, ensure accuracy, and maintain compliance with laws and regulations is strongly recommended. Alternatively, outsourcing payroll to a professional service can be a good option, especially if you are a fast-growing business with many employees.
10. Keeping up with asset depreciation
Depreciation is an accounting method that allocates the cost of a tangible or physical asset over its useful life or life expectancy. However, keeping up with it can be difficult for many businesses, especially those with a large number of assets.
Therefore, set up a process for regularly tracking, recording, and adjusting for depreciation, which could include maintaining a fixed asset register, utilising accounting tools with depreciation functions, or engaging an accountant proficient in these calculations.
11. Accurately pricing your services
Determining what to charge clients can be intimidating, particularly for businesses new to the market. You must charge a price that reflects your worth and covers all your costs, including the hours spent on administrative tasks.
A helpful approach is to start with your target weekly income and then work backwards. Let us say you aim to earn £600 per week and plan to work 40 hours.
Assuming you spend 10 hours on non-billable tasks like marketing and administration, you must charge £20 per hour for the remaining 30 hours. It is critical to ensure you account for all your expenditure – £600 income in a week would not be sufficient if you are spending £700 on the costs of running your business.
Furthermore, regularly review your prices as your experience and expertise grow, and adjust them to account for any cost increases. Give such small business accounting problems a rest.
12. Handling unpaid invoices
This issue is an all-too-familiar scenario for many businesses. A client has received the invoice, but despite reminders, the due date passes without payment. This situation can disrupt your cash flow and overall financial planning.
Therefore, implement a systematic approach to invoice management, including regular follow-ups with the client and sending reminders.
In case of overdue payments, you could also send a “Letter Before Action” via recorded delivery, providing evidence of your attempt to collect the debt. This letter is a final warning before pursuing legal action. Moreover, have clear payment terms in place from the outset and perhaps obtain upfront payments or deposits from new clients.
Over to you
In conclusion, such common accounting challenges can be a significant headache for UK businesses but can be overcome. A combination of professional expertise, continuous learning, smart use of technology, and proactive financial management can help your business rise above these issues and maintain healthy financial practices.
Remember, your business is unique, and so are your accounting problems. If you need expert-tailored advice, you can always count on us. Book a free consultation with us and tell us what is worrying you.
