Most small business owners cite bookkeeping as their least favorite task related to running the business. It can be a frustrating chore that takes up a lot of time and is easy to put off until tomorrow.
But it’s a task that simply must be completed. Government agencies like the IRS, the state comptroller and local taxing authorities expect you to have proper record keeping as part of mandatory tax compliance regulations.
Avoiding your bookkeeping can be disastrous because not knowing your company’s financial situation can result in a series of missteps that could ultimately cost you your business.
Here are three consequences of not keeping up with your bookkeeping:
You’ll make poor decisions
You can only make informed decisions about your business when you have a full picture of your current financial situation, including how much money is in your accounts, what your cash flow forecast predicts, and how much money you owe. Without that information, it’s much more difficult to know when you can afford to spend money or when you need to hold back.
Without proper booking, your decisions will be based on how you think things are going, and that isn’t always accurate. You may have just finished a good month and decide it’s time to hire new employees only to find out you don’t have enough money in the bank to pay them. Waiting three months to hire employees might be more profitable for you in the long run, but you won’t know that because your books aren’t up-to-date.
Maintaining your books ensures you have your company’s full financial picture available to you so you can make smart decisions.
You’ll make financial mistakes
Your employees, contractors, and lenders all rely on you to make your payments on time, every time. Payroll itself requires considerable attention to ensure your employees receive their benefits properly.
Not keeping track of your financial books can result in expensive errors being made, including benefits being missed, bills not being paid on time, or over- or under-payments. This could cost you extra in fees for late payments or rushed payments, which also affects your books.
On top of all this, financial mistakes can lead to a lack of trust. You need a trusting relationship with your employees, contractors and lenders. Payment errors can erode that relationship quickly.
You’ll lose money
In addition to losing money in unnecessary late fees and payment charges, not keeping track of your books can result in lost money that your business desperately needs.
You won’t know which of your clients or customers aren’t paying you on time, which means you can’t follow up with them or add interest charges for their late payments.
You could be paying too much in expenses and if you don’t reconcile your books you’ll have no idea that money is being wasted. Perhaps you purchased a software program to enhance productivity in the early days of your business. Maybe you stopped using it but forgot to cancel it, so each month for the past few years, you’ve been paying for a service you don’t use.
Those payments add up and affect your overall financial position.
Bookkeeping might be many entrepreneurs’ least enjoyable task, but it’s an important one. If you find yourself putting off bookkeeping or dreading doing it, it’s a good idea to look into hiring someone to do it for you. Bookkeepers are trained and knowledgeable in the process, and they can save you valuable time and money in the long run.
Otherwise, be prepared to set aside time regularly to do your books yourself and don’t let yourself put the task off. It’s too important to the future of your business.
Want to get your books in order without adding more work to your plate? Get in touch with us today.