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The Top Accounting Challenges Small Businesses Face

Updated Oct 10, 2023

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Alika Cooper
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You probably wear several hats for your small business: marketing your brand, hiring the right people, and maintaining relationships with your customers. On top of all that, you need to keep track of your profits and business accounting.

Accounting is probably not your passion, but keeping your books organized is crucial for your small business. Accounting is the language of financial growth, and tracking your numbers will show you how profitable your business really is.

Typically, accounting involves recording, summarizing, and analyzing the financial transactions of a business. This can be difficult in itself, but there are other common financial obstacles you must overcome. 

Editor’s note: Looking for the right accounting software for your business? Complete the questionnaire below to have our vendor partners contact you with free information.

Here are 13 of the top accounting challenges entrepreneurs must deal with, and how to overcome them.

1. Managing cash flow

Managing cash flow may be a big challenge for your small business. According to a U.S. Bank study, a whopping 82% of businesses that fail do so because of cash flow problems. Small business owners find it challenging to earmark funds to cover recurring costs and keep the business alive. 

To stay on top of cash flow, analyze your bills carefully and be thorough in chasing payments from customers. You should also pay close attention to your monthly expenses and cut costs wherever possible. Additionally, if you have any equipment you no longer use, consider selling it to quickly generate cash. 

2. Covering unexpected expenses

If a retail store earns $150,000 per year after expenses, it may seem to be in good shape. And it probably is, until an unexpected expense or emergency arises.

For instance, let’s say one of your employees slips and falls at work, and you don’t have adequate insurance coverage. The medical costs and potential lawsuits could easily cost your business over $1 million.  

Even smaller expenses – like a one-time government tax on all businesses in a particular area or a rise in the cost of goods – can cause significant changes to the bottom line.

Optimize your existing credit to manage your short-term expenses. It’s also essential to monitor your long-term profitability to ensure that cost changes don’t threaten your overall liquidity.

3. Reporting finances

For many businesses, one of the biggest challenges is keeping up with the financial disclosures required by the U.S. Securities and Exchange Commission. It can be hard to stay on top of the reporting requirements and ensure that you’re documenting this information correctly in case your company is audited.

The best way to ensure you’re meeting your reporting requirements is to outsource some of the work. Hire a bookkeeper or accountant who specializes in working with small businesses to ensure your books are up to date.

4. Filing taxes

Every U.S. business has to pay taxes, but taking advantage of deductions can drastically reduce your bill come tax day. And if your small business is home-based, then home office deductions are important for running your profits. 

Section 179 of the tax code allows you to deduct the cost of business property depreciation instantly. Consequently, that investment cost can be reinvested into your company.

5. Upholding current laws

One of the things that makes it so challenging to stay on top of your taxes is that the laws are constantly changing. Tax code and policy changes can have a big impact on your small company. And if you aren’t prepared, you could end up overpaying for taxes at the end of the year.

That’s why it’s a good idea to work with a qualified CPA to manage your taxes. CPAs are already well-versed in tax law and can advise you about using them to your advantage.

6. Regulating payroll

Playing the role of an HR or payroll expert can be difficult. If you don’t correctly classify your new employees, you could run into costly penalties. Several other factors are at play when managing payroll, including making sure taxes are filed correctly, ensuring employees are accurately paid each pay period, properly tracking employee time off, and dealing with a host of compliance issues. 

Did You Know?Did you know

Highly rated online payroll software can remove a lot of these headaches for your small business. You can learn more about some top options in our review of Paychex and our Gusto review.

7. Updating expenses

Keeping track of your receipts and recurring expenses can be exceptionally hard, but you need to stay ahead in the market.

Fortunately, you no longer have to store all paper receipts in a filing cabinet to process later. Many accounting software options on the market can help you go paperless. Every program is different, though, so do your research to find the one that best suits your company’s needs. 

8. Analyzing your finances 

Reconciling your books can be an annoying task, especially if you don’t use accounting software. It’s easy to make a mistake that can lead to incorrect data

That’s why it’s critical to verify all your business transactions on a monthly basis, if not weekly or daily. You may want to make it a habit to run through your accounting books at the end of each day while the transactions are still fresh in your mind.

Making sound financial decisions involves three steps: interpreting, analyzing, and advising. Regardless of the reports you use, generating the numbers is only the first stage. What do those numbers actually mean? More importantly, how do you improve them?

You must interpret and analyze these numbers to lead yourself to the best advice and decisions. By doing this, you can improve your financial position in your industry and find the loopholes affecting your business growth.

9. Securing your data

Every time you increase your business’s online exposure, you increase its risk of getting targeted by hackers. That’s why companies of all sizes must start taking cybersecurity seriously.

To get started, you should assess your business’s level of vulnerability. You might consider working with a cybersecurity professional who can evaluate your business and identify areas of weakness. From there, you can come up with a plan to address them.

FYIDid you know

You may also benefit from taking out a cyber insurance policy to ensure you are protected should the worst happen.

10. DIY accounting

When it comes to your business’s accounting, trying to go it alone can be a costly mistake. You may be an expert on your business, but that doesn’t mean you’re an expert on bookkeeping. 

Even if you can balance your books, it’s easy to make unnecessary mistakes. Invoices could accidentally go unpaid, you could run into cash flow problems, or end up overpaying taxes. 

Hiring a skilled accountant will ensure your books are up-to-date and accurate. Having a second pair of eyes on your records will reduce the likelihood of mistakes and help you identify opportunities to cut costs. It will also save you time that you can spend on growing your enterprise.

11. Embracing accounting software 

Excel spreadsheets may be the old way to manage your books, but it’s still common practice for many small business owners. If you’ve done it for years, why change now?  

The best cloud-based accounting software can streamline your business processes and help you identify growth drivers. It will also cut down on the time it takes to record and reconcile your transactions. 

Most cloud-based accounting programs charge you monthly and give you access to a plethora of services – including sales tracking, budget planning, inventory management, financial statements, payroll, and tax management. 

The variety of features and functions can be overwhelming, but accounting software is powerful and provides actionable insights about your company. By learning the software and training your staff on it, you can cut down on the time it takes to run reports.

Did You Know?Did you know

Our review of QuickBooks Online and our Sage review can provide more details on how accounting software can help keep your finances in order.

12. Working remotely

The coronavirus pandemic forced many people to start working from home and, 18 months later, many employees aren’t ready to go back to the office full-time. But remote work has produced tax compliance risks for many companies. 

According to the Society for Human Resource Management, 28% of employees have either worked outside of their home state or country, but only a third told their employer about it. That means many businesses may have failed to withhold payroll taxes and could be in big trouble if their business is audited. 

You may need to consider adopting a new remote work policy for your employees. If necessary, find ways to track your employees’ work locations so you know you’re meeting tax requirements. 

13. Sweating the small stuff

To get the most accurate picture of your business’s finances, record and categorize every transaction. It’s also important to perform an audit of your books each month and run regular reports. 

The better your bookkeeping system, the easier it will be to spot errors. Only through accurate accounting can you get a clear picture of your company’s status.

Jamie Johnson contributed to the writing and research in this article.

Alika Cooper
Community Member at
Alika Cooper works a Business Development Manager at Cogneesol, a well-renowned company offering data management, technology, accounting and legal services. She has been working with Cogneesol for the past 10 years and is responsible for branding and generating sales. While handling the projects, she has witnessed a lot of changes over the years. She has been thoroughly researching and sharing her viewpoints about these industry trends and changes on many platforms across the Internet.
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