Consequences of Bad Bookeeping

The Serious Consequences of Bad Bookkeeping on Your Small Business

There are many things that you need to worry about as a small business owner. Not only are you evaluating cash flow to make sure that you have enough money for payroll, but you are also carrying the burden of overseeing employee management, budgeting, business development, customer service, marketing, and more. These responsibilities can add up, making it easy for important tasks to slip through the cracks. Certain tasks can be handed in the future, but don’t procrastinate financial matters resulting in a situation where you are facing bad bookkeeping practices.

Bookkeeping and accounting encompass all aspects of the financial side of running a business. It is essential that you are tracking the money that is coming in and going out so that you have detailed information for tax filings, profit and loss reports, and more. Without the right financial tracking, you are setting your business up for failure.

Some small business owners attempt to manage bookkeeping in-house. If you have professional experience as an accountant, then you might have the skills to handle these responsibilities. Even though you have the skills, there are advantages to outsourcing these tasks. For example, it can be a challenge to keep up with the changing tax laws and other factors that impact your finances. Plus, most business owners don’t want to spend their free time crunching numbers.

What Do Accounting and Bookkeeping Encompass?

Many aspects of your business fall under the umbrella of bookkeeping and accounting. If money or value is changing hands, then these details need to be addressed by your accountant. These transactions can include everything from payments and earnings to purchases, sales, and receipts.

The goal of your financial system is to track the money that is flowing in and out of your business. Every penny needs to be accounted for to ensure that you are making the right decisions to support the future of your company. This information is necessary to help you with tax calculations. Additionally, you need accurate reports so that you can calculate your profits and make good decisions regarding the spending and business plan for your growing company.

Are There Problems with Your Financial Records?

Jotting down a transaction on a piece of scrap paper isn’t good enough for your financial tracking. Instead of “getting by” with unproven systems, right now is the perfect time to implement an effective accounting and bookkeeping program. This step will help you overcome some of these common mistakes that happen when an inexperienced person handles bookkeeping for a company:

  • Lack of consistency where transactions are recorded
  • Hand-written accounting, instead of using a computer system
  • Only using manual calculations
  • Overlooking small transactions
  • Missing tax payments and paperwork
  • Lack of communication with a bookkeeper or accountant
  • Organizational problems causing lost invoices and paperwork
  • Falling behind on data entry
  • Failing to complete regular audits and checks
  • Hiring an inexperienced person to do the bookkeeping

Tracking your financial records might be the most important thing that you can do to support the future success of your company. If you let these tasks fall to the backburner, then you will face big challenges that need to be overcome before you can lead your business to the goals that you desire.

Why Do You Need a Bookkeeping Professional?

It seems easy to hire a secretary to oversee the financial transactions. Isn’t it easy to do a little data entry from the receipts and sales invoices? Yes, a low-level employee can oversee some of these tasks. But, they need the training and understanding to make sure that they aren’t missing important parts of the financial tracking.

In addition to the daily data entry, it is also important that higher-level strategy is used to plan for the future. Not only do you need to assess cash flow and profit/loss reports, but you need to be prepared for tax filing. Correct information on your financial reports will have an impact on the taxes that you pay and the amount of money that you can save due to write-offs

An experienced bookkeeper could cause a domino effect that impacts many aspects of your business. Even though a missed transaction or mathematical error might seem minor, it can play a big part in the accuracy of your reports in the future. When it comes to finances, it is essential that you have an expert team overseeing every detail. Hiring a professional accounting and bookkeeping service not only ensures the accuracy of your reporting, but it also helps with the long-term success of your company.

What Will Happen if You Have Bad Bookkeeping Practices?

If you don’t know a lot about accounting and bookkeeping, then it is possible that you don’t understand the serious implications of bad bookkeeping. Here are a few consequences that you might face:

  • IRS Audit: Resulting in time, stress, and money for accounting services to work through the audit. If incorrect information is discovered on your tax filing, then it is possible that you will be facing expensive fines and fees that could negatively impact your current cash flow. The best solution is to have an experienced accountant who will help you follow the rules and avoid the risk of an audit.
  • Cash Flow Problems: What will happen if it is time for payroll and you don’t have enough money in the bank to pay your employees? Costs come up every month for business development, payroll, office supplies, and more. If you aren’t tracking your inflow and outflow, then you might be caught in a difficult situation where there isn’t enough money to pay the bills. These problems can be avoided by hiring a good accountant who will track the records and help you avoid cash flow problems.
  • Poor Business Decisions: How can you make accurate decisions for your company if you don’t understand the current financial health of the business? When you are facing decisions about hiring employees, business development, or marketing costs, you need an accurate picture of the financial health of your company. This information is essential so that you can run financial reports and then make decisions based on the current financial trends that you are experiencing.

Important Principles of Good Bookkeeping and Accounting

So, what should you be looking for when you are ready to hire someone to help with bookkeeping and accounting? First, make sure that you find a team with many years of experience in the industry. You need an accountant with hands-on experience working with other small businesses. For example, you will get better results hiring an accounting team that focuses on small business services, instead of hiring someone who usually does personal tax filings.

Next, it is important that your accounting and bookkeeping team has a good system that is implemented to track financial transactions and generate reports. Everything should be done using a software program, instead of using hand-written records or manual tracking on a spreadsheet.

The system needs to be able to categorize expenses so that you know how much you are spending on various things. Breaking down these details can help you see where you are spending the most money on unnecessary costs. You can also evaluate the most profitable aspects of your company, helping you maximize cash flow by focusing on the activities that are bringing in the money.

A good accounting system needs to account for every penny that moves through the company. There are also taxes and other things that need to be accounted for as well. For example, sales tax, quarterly tax payments, and other details need to be tracked and paid along the way.

Finally, it is important that your accounting team offers a reconciliation of your bank accounts. Even if you are consistent with data entry for the transactions, there are times when the numbers are off, and everything needs to be adjusted. These small discrepancies can be identified if regular reconciliations are happening. This effort is basically a small audit to make sure that all of the accounts match up and everything is in alignment.

Don’s Stress Over DIY Accounting

There is no reason why you should be handling the stress of managing the accounting for your company. As the business owner, you have enough to worry about for the business development, employee management, and more. Let a professional team of accountants and bookkeepers oversee the financial tracking for your company, freeing up your time to focus on other activities that will help your company grow,

DIY accounting is often a bad idea because it results in many problems with inaccurate reports and missed transactions. Instead of making a mistake by handling the accounting in-house, it is better to hire an outsourced team to help.

The Easier Accounting team is experienced in all aspects of small business accounting and bookkeeping. If you need a trusted team to help with your company, then we invite you to call us today to learn more about the services that we offer. We are here to help with the financial success of your company: (888) 620-0770

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