How Lax Bookkeeping Can Hurt Your Business
If you do your own bookkeeping and don’t always keep up, or your bookkeeper is often distracted by other tasks, you can find yourself facing cash flow issues and other financial problems.
Here are 7 warning signs your back office might be putting your business success at risk.
1. You Don’t Know Your Numbers
To know your business, you have to know the financials such as:
- What drives your business
- How much each department makes and costs
- How much it costs to make every dollar that comes in
- How sound your business is financially
You cannot know these numbers, nor have a clear understanding of your business’s financial health, without a sound bookkeeping and accounting system.
With timely, accurate bookkeeping, you can avoid:
- Costly errors
- Outdated reports
- Unreliable data
Reliable bookkeeping will give you accurate numbers for the Key Performance Indicators (KPIs) most important to your business. When you know your KPIs, you can set strategic goals, make data-driven decisions and, ultimately, achieve your goals.
2. You Hit Cash Flow Walls
Without good bookkeeping habits—such as those used by professional bookkeeping services—you can run into cash flow challenges like:
- Days Paid Outstanding dragging out longer than expected
- Falling short on available credit
- Incurring expensive overdrafts
- Cash flow drying up completely
Having your expenses and payables tracked daily will give you a good picture of your company’s cash flow in real time. This will also improve your ability to predict cash flow problems.
3. You Can’t Strategize
As a business owner, you must have a vision for the future, as well as a plan or operating framework that will help you get there.
Lax bookkeeping prevents you from setting realistic goals, tracking benchmarks and measuring progress.
4. You Miss Tax Deadlines
If your records aren’t consistent, when tax time comes, you will have a huge tangle of receipts to sort through. You risk:
- Missing filing deadlines
- Making mistakes on your tax documents
- Incurring penalties
- Triggering an audit
Efficient, dependable bookkeeping companies ensure your business is tax-ready year-round.
5. You Don’t Have a Handle on Expenses and Can’t Price for Profit
Without an appropriate system for signing off on expenses, cataloguing receipts, putting expenses in the right bucket and allocating costs, you’ll have no idea of your actual expenses.
Without a clear picture, you won’t know how much your business is spending (or on what). You also can’t make strategic pricing decisions. There’s no way for you to measure your profit margins and optimize pricing without accurate expenses information.
6. You’re at Risk of Internal Fraud
If you are operating without policies and processes that separate powers and duties, your small business risks enormous loss.
No matter how much you trust your employees, all small businesses are susceptible to internal fraud. Executing proper checks and balances, separation of powers, and enlisting the help and oversight of a bookkeeping firm can help you avoid this costly problem.
7. You Incur Unnecessary Fees
When your books aren’t in order, you’ll inevitably lose money through unnecessary fees. These fees could be overdraft fees, bank fees for falling below your minimum allowable bank balance, and/or late fees from vendors and lenders.
Messy record-keeping also makes it very difficult to comply with regulations and tax laws.
Hiring an Outside Bookkeeper Can be One of Your Best Business Decisions
Outsourced bookkeepers normally cost businesses less than doing the work in-house due to increased efficiencies and fewer errors. With an outsourced solution, your business can access the knowledge and experience of financial professionals.
You’ll have a partner who can optimize your systems, improve your processes, and help you interpret your financial reports so that you can make strategic, informed business decisions.