The focus of all small and medium sized (SME) business owners and managers in Ghana is to grow and expand their businesses. The focus is always on getting more customers, making more money and expanding operations.
By being single mindedly focused on the marketing, sales and the operations of the business, many chief executives and business managers lose sight of the accounts and finance of the company! They are being engolved with many accounting challenges.
We all understand that businesses are not in business to keep books—obviously to make money—but by not keeping the books properly; you will be out of business. This means in as much as you want to promote your products, make sales and generate profits, you need to watch the bottom line, or else your company will be exerting efforts in futility.
SME’s in Ghana face different kinds of accounting challenges, some minimal and others enormous. Always remember that “Cash is king”. Cash is the fuel that runs your business empire. That means you must always keep track of your cash and cash records well.
Let us now look at the 5 most common accounting challenges confronting SMEs in Ghana.
Challenge # 1: Doing Everything
One of the accounting challenges that many micro and small business owners face is doing everything themselves. When you first start a business, you’re responsible for everything and you do everything from marketing, sales, operations, financing, and customer service to accounting.
You are a jack of all trades, master at none. But before you realize, your business begins to grow—it begins to soar and smiles beam on your face. You don’t have time to keep your books up to date. Without accurate, real-time bookkeeping, you don’t have the tools to know how your business is truly performing.
You need to develop an accounting system and hire accounting experts to help you. Paying an accounting firm a minimal fee to help you put your accounting together may seem expensive at the beginning. However, it is worth the investment and will yield a higher return!
Challenge # 2: Mingling Personal and Business Expenses/Funds Together
This is basically one of the pitfalls of SMEs. Many SME business owners and managers think that because they have shares in the company then they can use business funds for their personal needs. Many SME business owners are unable to separate personal transactions from the business transactions.
You must understand that your business is a separate legal entity from you. The fact that you work in the company does not mean the business and you are the same. SME business owners must pay themselves and also bear in mind that they are not the only one with a stake in the business. Remember there are employees, suppliers and the tax man too!
The way to avoid this mistake is to separate the business account from your personal account, you must also separate your personal expenses from that of the business.
Challenge # 3: Improper Record Keeping & Wrong Categorization of Accounts
This is another area where SMEs miss it. Many SMEs either keep no records or keep improper records. In business everything is important, so keep all business records—small or big. All business records must be kept in appropriate books of entry. Then at the end of every business period, you reconcile the books with the bank statement in order to ensure accuracy of accounts. This is why it is necessary to consult a professional accounting firm to set up the accounting systems for your business.
Many SMEs assume that profit is the same as cash flow, they treat employee compensation in the same way they treat a contractor’s compensation. They categorize accounting transactions wrongly, don’t differentiate accrual accounting from cash accounting and also neglect the reconciliation of ledger balances.
As a business grows, the dynamics of its accounting system will inevitably change. The system that is in use when the business is a startup will likely become outdated within a year or sooner. There are several reasons why this might happen, including but not limited to: the hiring of more employees, business expansion, increased customer base, and industry-specific needs.
As the business grows, the changes occurring will impact how your accounting system works, and it is important to recognize when your accounting software or system requires updating. To ensure that your books are being managed efficiently, upgrades may be necessary to reflect these changes.
This is one of the core reasons Multisoft Solutions provides basic accounting training to SME business owners, managers and junior accounting professionals of companies –to ensure that you do not only start right but also progress in the right direction.
Challenge # 4: Not Budgeting
Budgeting and forecasting are one of the essential business tasks every business must take. It is amazing how many business managers make large financial commitments without any proper budgeting. Many businesses begin projects and aren’t able to complete because they have not plan and budget ahead!
It’s very important to budget for each business day, week, month, quarter and the year, this is the only sure way of avoiding future cash flow problems.
Challenge # 5: Not Backing Up Accounting Data
We live in the world of surprises—negative and positive surprises. Your job as a business manager and business owner is to assume the best and plan for the worst. One way to plan for the worst in your business is to back up your business data.
Anything can happen to your manual accounting books; it can be stolen, destroyed by flood, it can be in flames through fire outbreaks or manipulated by fraudsters. These are unpredictable occurrences but surely do occur. Investing in proper backups is the only sure way of hedging and preventing such losses.
Why spend money on local backup systems when you can invest in cloud business management software. Backups and security of the data become the responsibility of the provider. You can take comfort in the fact that good providers have huge datacenters that take periodic backup of the entire data. Your account is always secured even if a natural disaster or misfortune happens at your business office or to your manual accounting books.
By avoiding these accounting challenges, SMEs in Ghana can grow their business and also manage their finances properly!
Which of the above accounting challenges are you facing in your business? How is it affecting your business growth? What are your views on the 5 most common accounting challenges facing SMEs in Ghana?Share your business challenges and contact Multisoft Solutions (email: firstname.lastname@example.org or call +233-302235149) forr help!