Small Businesses and Accounting

Posted by Ankit on March 14th, 2020

Small businesses and accounting go hand in hand but many small business owners are not equipped to handle accounting on their own. SMB’S represent 99.9% of all U.S. businesses. That is a whopping 30.2 million small businesses. The SBA Office of Advocacy defines a small business as a firm with fewer than 500 employees More people than ever are on the pursuit of owning a small business and opting out of the corporate 9-5. In fact, there was a 27% increase in the amount of small business owners taking that leap out of corporate America and into entrepreneurship.

People want to be their own boss and are following their passions; creating their own opportunities. However, 82% of all small businesses fail due to negative cash flow. That is an astounding statistic! Often, the cause of negative cash flow lies in operations when you do not make enough or spend too much. Fewer accounts receivables than accounts payables can cause negative cash flow.

Low unemployment equals negative labor issues

Due to a lower unemployment rate as of September, 2019, of 3.5 percent, small businesses take a hard hit. There was a 22 percent increase in the share of small business owners reporting recruiting and retention of employees as one of the biggest challenges.

Small Business Accounting

Only a small fraction of small business owners are appropriately handling accounting on their own. So, they often rely on their accountants to perform all their bookkeeping, tax calculations, and other accounting tasks. Accounting affects the financial stability of a company or an individual and improves the flow of cash. Small businesses and professional accountants are looking for ways they can cut costs, improve time management, and be better prepared for future changes in accounting.

Small Business Accounting Statistics

• 60 percent of small-business owners feel they are not very knowledgeable about accounting and finance (Small business report)
• 64.4 percent of small-business owners use accounting software (Statista)
• 30 percent of small businesses place accountants at the top of their list of trusted advisors (ICAS)
• 70 percent of small-business accountants see their advisory roles becoming more strategic (Paypie)
• 58 percent of small businesses don’t expect to meet with their accountants face-to-face (Arbitrue)

Accounting Statistics Related to the Cloud

Cloud accounting is rapidly shifting the accounting process from local desktops to the cloud. It saves the companies a lot of efforts and money by allowing its users to access their accounting software from anywhere and at any time with the help of the Internet, instead of installing it on each and every computer.

The statistics below illustrate the trends and benefits of accounting in the cloud:

• According to Sage (Sage Practice of Now 2018 Report), the percentage of accountants who prefer cloud accounting is 67%.
• According to Accounting Today, 58% of large companies are already using cloud accounting.
• According to Xero, the companies that use cloud accounting exclusively saw a 15% growth in the year-over-year revenue pattern and were also able to get five times the total number of customers than the companies that don’t use cloud accounting exclusively.
• According to Forbes, the cost of labor is reduced by 50% with the help of cloud accounting.
• According to Accountancy Age, the percentage of small businesses that will solely rely on cloud accounting by 2020 is 78%.
• According to Flexi, the global market size for cloud accounting was .62 billion, and by the end of 2023, it is estimated to be .25 billion.

Cloud computing is the preferred method for the accounting industry. A custom cloud arrangement can provide correct security privileges, data backup, and better control, helping accounting firms to diversify their business initiatives.

Many accounting firms and CPA’s are moving to the cloud because of the many advantages.

Conclusion

Owning a small business and accounting are two separate jobs. Small businesses rely on a variety of resources to manage their finances, including software and both in-house and outsourced staff. Accounting firms and SMB’s are looking for ways to better handle their accounting, accounts receivable, and accounts payable. Only a small fraction of SMB owners are equipped to perform accounting on their own. That’s where we come in.

At Accounting District, we help small business owners and accounting firms and CPA’s with their accounting and bookkeeping functions. Everything is cloud based and we provide you with your own dedicated team which also cuts costs of having an in-house staff.