Bookkeeping might not be the most exciting, or the most popular task in running a business – but that doesn’t make it any less essential when it comes to making sure that you’re building towards success – rather than falling towards failure. Without an understanding of the numbers behind your company, it’s impossible to figure out what’s working for your brand, and what’s going wrong – meaning that you could be making significant mistakes without even recognizing it.
So what happens when you don’t put the right bookkeeping practices in place for the benefit of your business? In simple terms – your business will start to suffer. After all, ensuring that everything in your company is running smoothly is about more than just setting a bookkeeping plan in motion – it’s about finding one that works well, in terms of accuracy and efficiency.
Following are just some of the ways that bad bookkeeping could be hurting your business.
1. Missed Expenses
The idea behind any tax return is to maximize the expenses that you can claim for, so that you can reduce the taxes that are owed. Miss even one set of expenses on your taxes, and you could suffer with a tremendous impact. On a yearly basis, many bookkeepers are astonished by how many expenses small business owners simply forget to claim.
2. Late Filing
If you don’t file your taxes on time, then you’ll end up being asked to pay serious penalties and interests that start from the day after your due date. The problem with bad bookkeeping practices, is that they often involve a lack of preparation and planning, which means that you could end up struggling to make sense of your accounts days before your tax return is due. On top of the penalties, a late filing leads to an automatic red flag with the IRS, which could lead to an audit.
3. Accidentally Mixing Personal and Business Accounts
If you fail to keep your business and personal accounts separate, then you can find that your life becomes a lot more difficult during an audit. After all, it’s much easier to prove and reconcile your accounts when everything that comes into, and goes out of your business finances runs through a set of unique accounts.
4. Losing Old Records
Taxes and bookkeeping aren’t “set and forget” concepts. Rather, you’ll need to keep your financial records for a minimum of six years. This will ensure that if you are ever required to deal with the stress of an audit, you’ll have the documentation to back up your previous claims. Bad bookkeeping practices can mean that important files get misplaced, creating a serious mess when things start to go wrong.
5. Failure to Understand Your Business
Bookkeeping does more than keep you on the right track with your taxes. Effectively watching over your accounts ensures that you’ll have a better understanding of the workings in your business – from how much money you lose on expenditures every month, to how much you gain through profits. The more you know about these crucial numbers, the more you can take steps towards maximizing incoming money, and minimizing outgoing money.
6. Inability to Make Good Decisions
If your poor bookkeeping tactics mean that you fail to update your books as regularly as you should, then the chances are that you won’t have the relevant information that you need to make proper business decisions – as your numbers won’t be current. How do you decide whether you can afford to invest in more staff, or replace an outdated piece of equipment if you have no idea what your current financial situation might be?
7. Not Knowing Your Limits
Finally, if you don’t have time to devote yourself towards proper bookkeeping, then you can’t learn things such as how much cash you’re going to need to pay off your expenses next month, and whether your cash flow ratio is positive or negative. In other words, you might end up getting yourself, and your business into a serious amount of debt. Simply getting the help you need, on the other hand could effectively reduce your chances of making errors, and ensure you have more time, and information to properly run your business.
At the end of the day, good bookkeeping practices can make the difference between a successful, and an unsuccessful business – particularly in the long term. Don’t be one of the many companies who fail to remain diligent, up-to-date, and organized.
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