Common Finance Issues You May Find During Your Initial Finance Review – Week #4 of The Financial Operating System®
Conducting an initial financial assessment often uncovers common finance issues that business owners must fix to maintain accurate and useful financial reporting. Many small businesses struggle with bookkeeping errors that impact profitability and cash flow. This post highlights key financial challenges and explains how to resolve them.
Common Finance Issues in Small Businesses
1. Unreconciled Bank and Credit Card Accounts
Many businesses fail to reconcile bank and credit card accounts properly in QuickBooks. Old, uncleared transactions distort financial records, making cash flow, assets, and liabilities appear stronger or weaker than reality.
2. Incorrectly Reported Client Deposits
Client deposits should appear as liabilities on the balance sheet until the business delivers goods or services. When deposits are misclassified as revenue, financial reports become inaccurate. Revenue is inflated and associated costs are omitted.
3. Poor Chart of Accounts Segmentation
A good chart of accounts clearly separates:
- Cost of Goods Sold (COGS)
- Direct labor costs
- Marketing and sales expenses
- General and administrative costs
4. Misclassified Payroll Expenses
Payroll expenses can be tricky and must be categorized accurately, including:
- Employee wages
- Payroll taxes
- Employee benefits
5. Outdated Accounts Receivable
Unpaid invoices inflate accounts receivable balances. If payments remain overdue beyond a reasonable period and are unlikely to be collected, the business should write them off as bad debt to avoid reporting inaccurate revenue and inflated profit.
6. Outdated Accounts Payable
Outstanding vendor bills that will never be paid should also be removed. Failing to clear old payables weakens financial statements– inflating liabilities and making it hard to know what you actually owe vendors and to model cash flow projections.
7. Mismatched Revenue and Expenses
Revenue must align with the corresponding cost of goods sold (COGS) within the same month. When mismatched, financial reports provide an unreliable view of profitability– way to high in some months and way to low in other months.
How to Fix These Common Finance Issues
Many of these problems can be corrected internally with structured bookkeeping. If errors persist, seeking professional accounting expertise is the best solution. Addressing these issues ensures financial statements remain accurate and actionable.
Why QuickBooks Isn’t Enough
QuickBooks dominates small business accounting, yet it does not:
- Automate accrual accounting.
- Offer detailed financial insights beyond basic reports.
- Replace skilled financial analysis.
Business owners should rely on trained financial professionals to interpret reports and guide strategic decisions.
Next Step:
Business owners can self-implement The Financial Operating System. Chapters are available to download at smartbooks.com/resources or you can buy the whole book from Amazon (the marketing firm version or the general business version).
If you would like assistance with implementation or would like to accelerate results for your business, please contact author Cal Wilder at cwilder@smartbooks.com or book a free consultation with our team directly using this calendar link.