Top Accounting Problems IT Companies Face (And How to Fix Them)
Streamlining your workflows, systems, and workforce is part of being a cutting-edge tech company that focuses on efficiency and profitability. Accounting problems can strain your business, causing:
- Poor cash flow
- Disorganization
- Potential costly oversights
Avoiding accounting problems as a tech company is crucial at a time when 150,000 tech jobs were cut last year and fears of a recession continue to loom. But even at times when business optimism is high, small mistakes slow growth.
We’re going to discuss the common accounting issues we see in the IT industry to help you avoid them.
Top 5 Accounting Problems IT Companies Face
1. Poor Cash Flow
Managing cash flow must be a top priority for tech companies trying to do more with less. Over 82% of business failures are, in part, due to cash flow issues. Economic hardships often see companies do a few things:
- Defer investments
- Increase liquidity
- Focus on cost containment
Pulling back on investments and focusing on cash flow is one way to position your business for success, even if an economic downturn is possible. You should be doing everything you can to improve cash flow, even during strong growth periods, which may mean:
- Reducing unnecessary expenses (like those SaaS subscriptions that overlap or no one gets around to cancelling).
- Invoicing promptly with reminder automation to reduce nonpayment and increase cash flow.
- Tracking cash flow more closely to make smarter, data-backed decisions.
Your business may have healthy revenue, but if cash flow shortages exist, your paper profits can mean very little. Monitor cash flow, reduce expenses and know your real-time cash position before making critical decisions.
If cash flow remains too low, short-term financing may be an option.
2. Using the Wrong Accounting Software
Businesses have a lot of choices when choosing accounting software:
- QuickBooks Online
- Expensify
- BILL
- Gusto
- Xero
- FreshBooks
- Sage
- Dozens of others
Options are a good thing, and tech companies must select a solution that remains cutting-edge and adapts to changing regulatory environments and laws. Cloud technologies are experiencing a major shift, with estimates of 45% of IT spending going to cloud-based options.
Your accounting software should do more than help you manage the books and make taxes simpler. Advanced reports, real-time income and expense tracking, cash flow management, invoicing and more are often available on one accounting platform, such as QuickBooks Online.
One platform handling multiple aspects of your business and offering automation can save you time and money.
3. Disorganized or Incomplete Records
Tech, as with all industries, is fast-paced and ever-changing. Financial landscapes shift in an instant, and one incomplete record can lead to disarray. You need a systematic approach to your financial documentation so that you never overlook:
- Transactions
- Expenses
- Errors
Your bookkeeping practices can fall short, causing legal compliance issues in the process. If you face regulatory inspections or audits, disorganized or incomplete records can lead to failed legal compliance.
Add in a loss of investor trust, and it’s clear that every tech company must follow strict bookkeeping standards.
4. Employee Expense Fraud
Your books being in order also helps you identify one additional issue: expense fraud. Employee expense fraud comes from things, such as:
- Inflating mileage claims
- Claiming personal expenses as business expenses
Small expenses are easy to overlook. A new purchase here, another expense there and before you know it, thousands of fraudulent expenses are made. If you have a lot of revenue coming in, you may miss these small bouts of fraud.
Annually, U.S. businesses lose $2.8 billion to this type of fraud, which includes inflating or altering expenses, claiming non-business purchases, overcharging cards, double charging and exceeding allowable limits.
Even if some of these expenses are honest mistakes by employees, they’re accounting problems that will cost you money.
5. Payroll Mistakes
Payroll is more complex than just paying employees for the time they work. Your payroll is ripe with challenges, as laws and regulations change at the state and federal levels. Businesses must manage withholdings, employees in multiple states (especially if you have remote workers) and avoid violations.
If you make payroll mistakes, it can trigger audits and lead to tax penalties.
Payroll management keeps state and federal governments happy while making sure you’re adequately paying employees.
Avoiding accounting problems requires a strong foundation with the right systems, processes and software in place. At Redmond Accounting, we can help you avoid these issues so that you can focus on growing your company.
Schedule a consultation, and we’ll help you avoid all of these accounting problems.
