Thursday, May 30, 2024

7 Reasons Why Your Accounting Practice is Failing

Your accounting business was once thriving, but now it’s struggling to survive. True, the last two and a half years have had their fair share of challenges, but with the pandemic quietly taking a backseat, your business should be better off.

The accounting business, like all businesses, is cyclical. You’ll have good months and bad ones, quarters that put you firmly in the black followed by ones that leave you seeing nothing but red. But these peaks and valleys don’t mean the end.

Most failing accounting practices can be saved, but they need to learn what they’re doing wrong and understand the steps they should take to correct their deficiencies to survive. Here are seven reasons why your accounting practice is failing.

Reason #1: Failure to Track Expenses

So often, accounting practices fail to execute the most basics of business functions properly. They’re so preoccupied by doing exactly that for their clients they can easily neglect to do it for themselves! But tracking business expenses, for example, doesn’t happen by osmosis. It takes a concerted effort on the part of every employee to track expenses correctly.

To do this well, accounting firms need to create a system for employees to report expenses. This way, your accounting department can categorize and track expenses so you’re ready for tax season.

You can’t truly assess your firm’s solvency when you don’t track expenses. You won’t know how much profit you’re making monthly, quarterly, or annual, and as a result, you won’t understand whether you’re failing or succeeding.

Reason #2: You Aren’t Engaging Technology

The good news, it’s easy to track your expenses with the right technology. But depending on how you run your practice, the bad news may be that you aren’t taking advantage of everything accounting technology offers.

Over the last two decades, the digital revolution has radically changed accounting. Once created manually, calculations and measurements are automatically generated with ease if you’re using accounting practice management software.

In addition to tracking expenses, these tech tools can help you manage your staff by delegating and tracking recurring work and automating action items. Accounting practice management software can also help you track project progress and easily collaborate with your staff, near and far. The bottom line, these programs help ensure nothing falls through the cracks.

If you’re still running your accounting practice off of spreadsheets and sticky notes, upgrading to accounting practice management software will help propel you to success.

Reason #3: Poor Bookkeeping

Accountants are professional bookkeepers, right? So, it may seem strange to think that there are firms out there that aren’t keeping their own books in tip-top shape, but it happens more than you think.

If you’re one of them, it’s time to start taking your bookkeeping responsibilities seriously. Your business is on the line; if you don’t keep better books or pay someone to do it for you, you will fail.

Using accounting practice management software, as we’ve already discussed, is an effective way to manage your books. But if you need something more robust and simply can’t spare the time to do it yourself, consider hiring an outside company.

There’s no shame in one accounting firm hiring another accounting firm to handle their books, especially if it means pulling your business back from the brink of failure. The better your books, the better the financial health of your business, and the investment is well worth it!

Reason #4: Poor Document Management

Are you keeping all the documents you should? Unfortunately, too few businesses, including accounting firms, do. And not keeping your receipts, statements, and other important financial documents could get your firm into big trouble.

In fact, the IRS has rules about document retention as it relates to your business taxes. According to the agency, you should keep most documents for two to three years, but you should save certain documents for at least seven years. When in doubt, just keep it!

Maintaining these records protects your firm in the event of an audit. And if you don’t have what you need when you need it, the absence of important documents could seriously hurt your accounting firm.

Reason #5: Failing to Stay Current on Regulatory Changes

Just as the IRS has rules about document management and taxes, so do the SEC and other governing bodies regulating business and finances in the United States and abroad. So if you aren’t staying on top of the legal standards for accounting, your firm could be at risk of failure.

The Financial Accounting Standards Board also sets rules for the way you should run your accounting business. Their latest set of standards, the Current Expected Credit Losses (CECL), is changing how firms across the country operate. Unfortunately, if you aren’t familiar with the CECL and aren’t actively pursuing this standard, there’s a good chance your firm will fail.

To get up-to-date on the CECL and learn how to incorporate the standard into your practice, visit the Office of the Comptroller of Currency website for more information.

Reason #6: Incorrectly Paying Employees

This may sound a bit strange. After all, who pays their employees more or less than their agreed salary and gets away with it? Plenty of accounting firms do!

Labor is the biggest expense for your business, and if you want your accounting firm to succeed, you need to pay your employees the rate you’ve mutually agreed to. Regularly audit your payroll to make sure you aren’t paying employees more than what they’re due. Overpay, and you’re putting your firm at risk of failure.

And if you’re paying your staff too little, you’ll have a completely different set of problems. Most employees will speak up to quickly correct compensation issues, but the few who don’t will have poor morale and little trust in you, their employer—two things you simply can’t afford in today’s competitive labor market.

Reason #7: Not Recruiting the Right Employees

The labor market is red hot right now and shows no signs of slowing down. So, in addition to keeping your current employees happy and satisfied, you need to attract top talent to keep your practice from failing.

Eighty percent of accounting managers are concerned about keeping their best employees. To do so, they need to offer good pay, flexible work schedules, and competitive benefits. The same goes for hiring. If you want a competitive edge over other firms seeking the same recruits, make sure your compensation package is more attractive than the rest.

This is far easier said than done, especially if you’re already struggling due to high turnover. But you need to do everything you can to make your firm a wonderful place to work so you can hire and keep the employees you need to keep your business afloat.

The stakes and competition have never been greater in today’s business world. It’s harder than ever to build a successful business, and once you do, there’s no guarantee it will stay that way. So if you’re struggling, do everything you can to uncover and correct the problem in an impactful way. Your business is banking on it!

Sam Allcock
Sam Allcockhttps://www.abcmoney.co.uk
Sam heads up Cheshire-based PR Fire, an online platform that has already helped over 10,000 businesses to grab widespread media coverage on their news at an extremely accessible price point.

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