Wellington Chemicals Division

BUS 518W-W1: Accounting challenges in small businesses

Marc Raphael

Barry University

Abstract

It has been noted that within the first five years of operation, a business can find itself going out of business. One of the must common reason small businesses go out of of business, is poor accounting practices. Most small business owners rely on accounting software to conduct their daily accounting operations, but don’t really have a full understanding of the accounting circle. There are many small businesses who do not invest in a robust accounting system, because they neglect it, thinking that accounting software can do all their accounting for them. They find themselves spending more money to fix their finances because they did not use proper accounting method at the beginning of their business. There are a lot of misclassification of account, which leads to misreporting of accounting reports. The damage cause by the misunderstanding of accounting in small businesses, can cause them to go out of business and ultimately damage the economy.

It is often say that the back bones of the economy are small businesses. But in many situations, small businesses with a weak understanding of the accounting circle, don’t survive the first five challenges years of their business. This challenges are very simple to identify and fix, but some business owners believe that they have the ability to conduct business without a proper understanding of the accounting circle. This kind of mentality is proven to be costly to taxpayers. Some small businesses don’t even understand the tax advantages or disadvantages of a business type such as (Partnerships, C corporation, S corporation, Limited Liability Companies, so on). They operate without that understanding and many time find themselves out of business within the first five years of operations. In order to face those challenges, I believe companies have...