(And What Happens When You Neglect Those Messy Books)
You need to keep a firm handle on your finances. This is especially true if you’re running a business. Whether you have a small operation or a large one – you need to know the numbers right away. And this is why you can’t neglect proper bookkeeping.
Messy books can be disastrous for any business. Hence, getting into the habit of keeping your books updated or hiring a bookkeeper comes with a lot of benefits. It can also save you from these serious problems.
You’ll have no idea how your business is doing
Your books tell the story of your business – at least the financial side of things. It’s possible to have lots of customers and process tons of orders and still lose money. We see this all the time.
When your records are not in order, you can’t tell where the money is coming from and where it’s going. It becomes even harder to know if there’s more money coming in than coming out.
You need reliable financials to know the status of your business. Without proper records, you won’t know how the business performed compared to previous periods. Moreover, it’s impossible to make the right decisions for your business.
For instance, you may decide to hire more people without knowing that you can’t afford to pay them. On the flip side, you may hesitate to add more employees when you can actually afford to spend more. This could prevent you from growing your business.
Tracking customer and supplier payments becomes especially difficult when your records are messy. You may have a bunch of uncollected accounts. At the same time, you may be missing payment due dates to suppliers which could hurt your relationship with them.
Filing tax returns may be stressful and costly
Can you file a tax return when your books are a mess?
If your accountant is willing to take on the task, then yes. However, if your accountant doesn’t have much to work with, they may charge a premium. Some may also refuse to accept the job when your records are a mess.
While accountants can help you organize your records, it can cost you more. An accountant may charge from $200 to $400 an hour to do this work (our rates are much lower by the way). The cost can be significant to go back an do this work after the fact.
Your tax returns may be inaccurate or not fully substantiated
When it comes to filing business, you want to maximize your business expenses to reduce your tax due. If your books are not in order, you may forget to claim some expenses. And those expenses you claimed should have adequate supporting information.
You are also more likely to report inaccurate income and expenses in your tax returns when your records are messy. These errors may lead to penalties and interest if you get audited.
Aside from the possibility of getting penalized and paying more, you may also miss the tax filing date. You can file for an extension, but if you can’t meet the new deadline, you may have to pay a penalty.
Getting financing may be a pain
When you have a business, you can’t discount the idea of eventually getting a new investor or applying for bank financing. In either of these cases, you’ll need to present your company’s financial information.
Having bookkeeping issues also puts you in a bind. Banks and other lenders and potential investors evaluate your business based on your records. Without those records, you can’t get a loan and it’s harder to get people to inject more capital.
Aside from that, potential lenders and investors will assume that you’re bad at making money if you can’t show the required documentation.
You are more likely to make payroll errors
Employees play a crucial role in your business. If you want them to do the job right, you have to take care of them. But it’s not enough to be a reasonable boss, you also need to pay your people on time.
In running a business, however, you can’t just think of your employees, you also need to consider your profit. So, you’ll need a clear system to audit employee-related expenses.
Without clear records, it’s impossible to manage your payroll properly.
Payroll records also include other things aside from the actual salaries and wages. It also involves taxes, health insurance, retirement plans, and others. If you can’t take care of all these expenses, your relationship with your team may suffer. Aside from that, you may be subject to penalties and interest–which can add up fast.
Sloppy Books Cost You More Each Year
Bookkeeping may be a tedious task but putting your books in order can save your business. It may be time-consuming to organize your sloppy records, but it is a necessary evil.
Most of the time, a one-time fix is enough if you are committed to sticking to better bookkeeping practices.
If you do the bookkeeping yourself, consider investing using easy to use bookkeeping applications like QuickBooks. Applications like these allow you to do so much more than Excel can.
When you’re running a larger operation and you can’t keep up with keeping your books in order, it may be time to bring in professional bookkeepers. Finding the right partner in proper bookkeeping helps you run your business better.
Finding the right partner in bookkeeping helps you run your business better and open up more opportunities.
We are a full-service bookkeeping firm located in Houston. We help clients located all over the world. If you need help with your books, we want to hear from you. Call today to see how we can help.