How to fix bad bookkeeping (and what happens if you ignore your books for too long)
Many entrepreneurs find bookkeeping a tedious and time-consuming task. However, if they ignore the part of bookkeeping they will certainly create many problems for themselves.
Efficient financial reports assist you to see how all the parts of your business perform. They also assist you to spot opportunities to address the problems and inefficiencies.
In this article, I will cover the scenario that exists if you don’t take bookkeeping seriously.
Inability to make Smart decisions
If you don’t reconcile your accounts and make required reports is just a lack of information. Without accurate data, you can’t make smart decisions to grow your business. By not having a cash flow forecast you will be uncertain if you can afford to hire new employees. You could risk hiring a person who creates a burden on your cash flow.
The same scenario is applicable to purchasing and renting tools and investing cash in marketing. Without having an exact picture of the financial situation, it is not possible to mention if you are creating or growing more problems.
You will run out of Money
No doubt, neglecting bookkeeping will lead you to run out of money irrespective that your business is good or bad at the moment. Unless you track your receivables, you don’t know who owes you money and when it’s due. Some customers don’t pay attention to pay you until they have to. Some of them don’t know that they have to pay as they never received an invoice.
It is also a possibility that you may allocate payments or debts to the wrong vendor that may create relationship issues. If you have not maintained reports, you could be on paying unnecessary things until you may notice it on the credit card statement.
Payroll Errors
The employees of the business are the frontline. You can’t operate without them; therefore they deserve to get paid first and on time. You may choose an interval to pay them, but you must stick to that schedule. Efficient bookkeeping assures that they pay benefits of your employees are tracked and distributed accurately. By not handling the payroll efficiently:
- You may fail in the collection of taxes
- You could have to overpay employees who may not report the overage
- You could have to rush payment to employees
Errors in payroll can even affect your relationship with your team. Moreover, you could even have to pay fines to the government by failing to pay payroll taxes to the government.
Inability to raise Money
You may need financing from a bank at some point in your business; it could be a one-time loan or a line of credit. Without having accurate records, the banks will not trust you. Banks make use of your records to analyze whether to give you a credit or not.
Even if you convince a bank to offer you some credit, the terms and conditions will be poor. Bad bookkeeping also creates a possibility that you’ll miss the payments or make late payments. You could also think about raising credit from investors. The investor would also like to see all your financial data dating back years before they make any decision. If you fail to show them the data, they will not invest in you.
BOOKKEEPING CAN’T BE NEGLECTED
Bookkeeping is no doubt a challenging task. It takes a skill set to look for small details. You could not be having much time every day to get the books done. By having an accurate bookkeeping system in your business, you can leverage the power of efficient financial reporting to make accurate decisions and protect your business from unnecessary expenses.