Bad Bookkeeping Can Hurt Your Business

The blog will cover the reasons why businesses and entrepreneurs should hire a qualified, professional bookkeeper. Not doing so could result in a lot of avoidable problems.

As a small business owner or entrepreneur, your hands are always full. From managing your employees to marketing, from business development to budgeting, there’s nothing that’s outside your purview. All this is great, however, multiple responsibilities can get overwhelming, making it easy for cracks to appear in critical areas of your business. Even a professional juggler can only handle so many tennis balls or clubs. One more and that may be their downfall.

When it comes to your business, there’s no doubt that financial clarity is pertinent; a sort of a financial snapshot of money flowing in and out each day, week, month and year. Other things such as marketing, for example, can be put on the backburner, but not your finances. It’s the life-blood of your business.

Lack of financial clarity can cause huge cash flow problems. It can blind-side you, and before you realise, you could be climbing an enormous mountain of debt; or, you may fail to identify between profitable products and services and those that are causing you to bleed money. Without proper record keeping, you may forget to invoice some of your customers. Rest assured, not every customer will have the integrity to inform you of your slip-up.

Without the books, you have no numbers, and without the numbers, you have no point of reference. Your small business will be unable to make business decisions, and won’t even be able to complete basic tasks such as submitting tax returns.

Poor bookkeeping practices can severely damage your business. When you don’t have a professional bookkeeper tracking the inflow and outflow of your money, it could lead to serious problems. If you’re a small business owner and have bookkeeping knowledge, good for you. However, if you don’t and would like to handle your own books, rather than outsourcing to someone, you could enroll in a part-time online or in-class Bookkeeping Course, which will give you the confidence and know-how to manage bookkeeping in-house.

Without professional experience, keeping up with the ever-changing tax laws, handling all the paper trail could be a daunting task. You don’t want to be in a position where you get into trouble for not doing the basics right. If you’re still unsure, you may want to ask yourself this: would I rather focus on growing my business and getting more clients or should I spend all my free time crunching numbers, fixing books, keeping up with new rules and regulations? 

The other shortcut that many business owners resort to is hiring someone in-experienced (just because they cost less) to enter data from receipts and sales-invoices. In that moment it may seem like the right decision, but it isn’t. It would be best if you don’t let your short-term gain gloss over the long-term damages this could lead to. You don’t want to hire someone without the appropriate training and skills handling your finances. It’s like going to a hair-dresser just because he charges less than the others and paying for it with a terrible haircut; one that you’re embarrassed to show in public.

An experienced bookkeeper will ensure that your cash flow and profit and loss reports are appropriately assessed, that all your transactions are error-free and recorded correctly, that your taxes are filed on time, and most importantly, you’re only paying taxes you’re supposed to be paying and not more or less.

How Do Bad Bookkeeping Practices Impact Businesses?

Inefficient bookkeeping practices can cause serious implications to your business or organization. From penalties to heavy financial losses, the risks are far too many to ignore. Listed below are some ways you may be impacted:

Outdated Records

If you have no clue where you stand financially and have records that haven’t been updated for months or years, it can lead to last minute scrambling, say at the time of preparing your tax returns. Being ill-prepared could cause unnecessary, avoidable headaches. Avoid the stress and keep your records up-to-date.

Moreover, in your time of need, if you approach banks or financial institutions requesting for loans, they may refuse because they may be unsure of your financial standing. Wouldn’t you do the same thing? Would you rather hire someone who has done his homework about your business and has the experience and motivation, or someone who is clueless about what you do and isn’t sure why they want to work with you in the first place?

Incorrect Information

If you have inaccurate information at the time of tax filing, you may be liable to pay hefty fines and penalties that will adversely impact your cash flow. You also don’t want to miss out on recording all your expenses so that you don’t end up paying more taxes than you’re liable for. Therefore, keeping a paper trail (having all your receipts) becomes vital, so that later when you make a claim, you have the documents to back it up.

No Money for Bills

As a business owner, you will have regular monthly expenses. If you don’t have any clue about how much money is coming in or going out, you will have a serious problem on your hands. Imagine it is time to pay your staff, or buy office supplies, or pay other bills and you don’t have enough money in the bank to meet these expenses?

Ill-informed Business Decisions

Only when you know the exact financial health of your business, will you be able to take the right decisions for your company. Without this knowledge, you won‘t be in a position to make expansion plans or hiring decisions or allocate expenses for marketing.

Another essential thing to remember is not to mix personal and business accounts. Many business owners don’t make this distinction and get into trouble at the time of audits.

Lack of bookkeeping knowledge or not having an experienced bookkeeper can multiply your chances of making errors. You need someone who is aware of all the guidelines and rules and knows how to manage your books correctly. It can save you a lot of time, money and stress. Importantly, a clean set of books with accurate information will help you know the health of your business.

How do you manage your books? Tell us in the comments below.