The Cost of Bad Bookkeeping
Every entrepreneur knows that there are many facets of a successful business. So many that it can be hard to keep up! We tend to slack on the things that cause us the most grief. For me, it's definitely sales (scares me to death). For others, it's bookkeeping/accounting. I wasn't shocked to learn that in a survey conducted by TD Bank, 58% of small businesses said they hated bookkeeping more than any other task.
Trust me, I get it. Tedious data entry, punching away at a 10 key calculator, hours spent reconciling bank accounts....you have to be built for this stuff! But, if you're not built for number crunching, there are still viable options out there. There are non-options too. Absolute no-gos. The non-options are approaching your businesses accounting half-heatedly or avoiding bookkeeping all together. Neglecting your business's finances can and will eventually take its toll on your bottom line. It's arguably the most costly business decision you can make. Here are several reasons why:
Inability to Recognize Downward Trends
In other words, not being able to see what services/products are money pits. You may be selling more than one service/product. It's important to record activity separately to see what service/product mix is making you money and which are eating profits.
Penalties and Fees
Paying bills on time and avoiding fees can make a big difference to your bottom line. For a lot of businesses, paying late is the norm. There are two issues here;
1. Late payments prove the current accounting system isn't efficient
2. The business is shelling out potential profit for unnecessary fees
Without documenting these fees, it's hard to tell just how much of an impact they have on your business. For example, a monthly $25 late fee for utilities becomes a $300 annual expense (not tax deductible).
Missed Tax Deductions
This one is simple. No receipt? No deduction. You pay more taxes. Well organized records and bookkeeping go hand in hand.
Miscalculations, omissions and inconsistency can trigger federal and state audits. Avoiding tax filings and reporting unsubstantiated expenses are great ways to get audited. If a business owner faces an audit, he/she must be ready to defend their tax position. Good audit defense starts with good, accurate financial records. Otherwise, prepare for tax, interest and penalties.
Loans Are More Expensive
Anytime a business owner applies for a loan, the lender requests a to
n of documentation. This includes financial statements that show the accurate, current health of your business. Without supporting documentation that proves your business is doing great, you may be subject to higher interest rates. That'll cost you in the long run.
Last but not least...
Bad bookkeeping costs you time!
...and as a busy entrepreneur, who has time to waste? Imagine spending hours correcting invoicing mistakes, calming angry employees because of payroll errors, cleaning up books that haven't been touched in years. This is time that could be spent developing new products or sending a proposal to that potential high dollar client. Your time is your biggest and most valuable investment!
The good news is, bookkeepers & tax professionals like myself have an acquired taste for cleaning messy books. All it takes is a 20 minute consultation to turn things around and start saving.