Common Accounting Challenges: How You Can Help Your Small Business Clients

Lili Török
Sep 7, 2018 · 4 min read

When it comes to accounting, small businesses are often out of their element. However, many small business owners are tempted or forced to do their own accounting to save funds.

When lack of expertise meets lack of knowledge, disaster may ensue.

Clutch, a business-to-business research company recently published a report on the accounting challenges small businesses face.

Small Business Accounting in 2018 is based on a survey involving more than 300 small business owners or managers who deal with their business’ finances in detail. The aim of the survey was to find out how small businesses keep track of their books and what kind of accounting issues they encounter.

The ensuing report is an essential read for both small business owners and accountants advising clients from that segment.

Main Findings of the Report

  1. The overwhelming majority (95%) of small business owners believe their financial records are accurate. However, experts think otherwise.

“Small business owners can think that they’re fine. Then, they have someone skilled look at their balance sheet, their profit and loss, and say, ‘Hey, this is missing, or this isn’t categorized correctly,’” Wanda Medina, managing partner of Maventri said.

2. Similarly, 93% of business owners are confident they filed their taxes correctly. Interestingly, despite this confidence, 30% of them still believe they overpay their taxes.

Roger Harris, president of Padgett Business Services says that “If they think they’re paying too much, they’re questioning the accuracy of their tax return.”

3. More than half of participating business owners (67%) keep track of their finances with the recommended accrual basis method. However, businesses with less than ten employees tend to still use the cash basis method.

4. Despite the potential risks and complications, 27% of business owners don’t have separate personal and business bank accounts. However, according to Rhett Molitor, co-founder of Basis 365 Accounting, “If you have a small business — I don’t care how small — you should create a separate bank account”.

5. Business owners believe their main accounting and financial challenges are unforeseen expenses (35%), undivided personal and business expenses (23%), late payments (21%), outdated financial records (11%), and clerical mistakes (11%).

Steering Your Small Business Clients the Right Way

There are several tips you can give your small business clients to solve their most common accounting challenges.

Separate Bank Accounts

It goes without saying that separating business and personal accounts is crucial to keeping track of your clients’ finances, however small their business is.

Confusing personal and business expenses can be a serious problem that may lead to unwittingly committed fraud or even business failure. Without a separate account, your client will have no way to know how their business is really doing.

Accrual or Cash Basis?

Although many accountants tend to prefer the accrual basis method to keep track of business finances, your clients may be happier with the cash basis method.

The accrual basis method records expenses and revenues when they are earned, i.e. when an invoice is received. On the other hand, the cash basis method records them when the actual payment is made. Accounts payable and accounts receivable are not recognized by the cash basis method.

Larger, B2B oriented companies may prefer the accrual basis method, which allows them to keep track of unpaid invoices. Smaller, B2C companies often feel they could do better with the cash basis method that gives a more realistic picture of their cash flow.

Accountants know that the biggest flaw of the accrual basis method is exactly that: the lack of clarity on cash flow. Although unpaid invoices look neat in accounts receivable, they don’t do a lot when it comes to paying your clients’ own invoices.

Despite cheap and convenient payment methods like Veem, your client can quickly run into money troubles. In fact, bad cash flow management often leads to business failure.

The best advice you can give your small business clients is to use a combination of the accrual and cash basis methods to have a clear picture of finances with the added bonus of close cash flow management.

Tax Returns

As Clutch’s study found, 30% of small business owners believe they overpay their taxes, despite their parallel belief that they’re doing a good job when filing their taxes.

Tax returns are almost an artform. With changing rules, new software and lots of money to lose, it’s more important than ever to invest in the professional help of an accountant. Convince your clients how much better they could do if they let you give them a hand when filing their taxes.


When dealing with small business owners, you need to know their market and the exact financial situation they find themselves in. Luckily, although all businesses are unique, many problems they’re dealing with are quite similar in nature.

Addressing the common accounting challenges of small businesses will help you gain the trust of their owners, and may just be the little push they need to become long-term clients.

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