As your small business grows and evolves, you are inevitably faced with more issues that you need to manage. However, having an efficient accounting system is fundamental in dealing with these issues. Your bookkeeping records must be a source of insight to aid you to make better data-driven decisions. Here are seven ways that poor bookkeeping will impact your business:
Credit Issues
Bad bookkeeping will have adverse effects on how you manage your entire business. For example, you could be paying off your debts late, which will lead to increased interest rates, lower payment terms, and credit loss. This can impact your credit score negatively. To avoid this, all you have to do is track your cash flow as a means of managing all your transactions.
Cash Flow Issues
Without proper accounting practices, you will face cash flow issues. By properly tracking your payables and expenses, you could get a better picture of your business's present cash flow. By doing so continually, you could even enhance your ability to forecast cash flow issues before they take place. Proper bookkeeping records will also improve your business's budgeting and help you avoid cash flow issues.
Legal Problems
Poor bookkeeping will invite legal challenges, especially when wrong deductions and late or unpaid filing of your business's tax returns are involved. Lack of funds to pay off your creditors could also lead to your company being sued. It isn't enough to only hire a bookkeeper. You need to hire a bookkeeper with expertise in tax policies.
You Can't Plan
Planning is critical to becoming a successful business manager. As a small business owner, you need to have a dream for the future of your company and an operating framework that will make that dream possible. Accurate bookkeeping records should be the most important part of your operation framework. Whether you are planning for next year, month, or even week, inaccurate accounting records will make that plan unsuccessful.Â
Tax Problems
Tax time becomes a major burden when your books are incorrect. If you fail to constantly update your accounting records, when tax time arrives, your company will have a large number of receipts to sort out. What was supposed to be an easy task becomes a nearly impossible task that will need a lot of labor hours. Eventually, this could lead to your missing tax deadlines, incurring penalties, and triggering audits.
Lack of Profits
Poor business management will make you lose good vendors and suppliers. You could also start losing sales. Consequently, a business slowdown will force customers and clients to look to other businesses. Apart from customer relationships, feedback, and customer management, your accounting records are also great references for your company's performance.
Possibility of Internal Fraud
A disorganized back office devoid of properly designed accounting processes puts your entire business at risk of incurring losses as a result of internal fraud. Without processes and policies that allow accurate checks and balances, your business risks massive losses caused by internal fraud.
Managing your back office properly thanks to effective bookkeeping and accounting systems means you can avoid stress, unnecessary audits, and losses. You could also outsource your bookkeeping services to professional companies like GeekBooks so you don't have to burden yourself with the tedious accounting processes.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
