Bookkeeping isn’t usually something that gets most business owners out of bed. Between fulfilment, finding customers, managing staff and everything else that comes with running a business, it’s the bookkeeping that often gets put on the back-burner.
And it’s easy to see why. It’s not easy to do. It’s often scary - especially when things might not be going too well - and in most cases, it’s just severely backlogged. However, when one of our clients finally decides to get our help, their relief is often instantaneous. Suddenly that time-consuming, stress-inducing role is taken from their hands, and they can focus on what they do best.
So in this article, I’m going to drill down a little further on five-key issues that can arise in your business if your bookkeeping is neglected. Hopefully, this might help you determine whether or not you improve how you manage your bookkeeping. Make sure to stick around til the end!
Let’s get into it.
1) Cash flow problems
Up-to-date bookkeeping makes it easier to know when and where money is coming in and going out of a business. If you’re not on top of your bookkeeping, eventually, you will run into cash flow problems. Generally, this happens when invoices haven’t been sent on time or properly followed up on when they aren’t paid. This creates unnecessary strain in paying your staff and suppliers.
Building strong relationships with our suppliers is key in business, and failing to pay them on time diminishes that relationship. It also puts you on the back foot as you try and negotiate better terms in your business. On the other hand, if your accounts are up to date, it becomes easier to budget, and you will be able to plan and prevent cash flow problems before they occur.
2) Impossible to strategise and make good decisions
It is only possible to make good decisions and strategise about your business when you have an up-to-date picture of your current financial position. Without having that information, it becomes tough to know whether you can afford to spend money to grow or whether you need to cut back in certain areas. Your decisions will be based purely on how you feel your business is going, which may not be correct.
If your bookkeeping isn’t accurate, it becomes difficult to set goals for the future, and even more so to measure any goals you do set. Ensuring that you don’t neglect your bookkeeping will result in having a complete financial picture available to you at all times, which in turn allows you to make timely, informed decisions.
3) You’ll lose money!
Neglecting your bookkeeping can ultimately lead you to losing money. With papers everywhere, you can be completely blind to who owes you money when, and the money that you aren’t getting is impacting your ability to make your own payments. Messy books can lead to missing your own bills and payments, resulting in unnecessary late fees and additional charges.
With papers everywhere, it’s hard to track your invoices and their due dates. It’s also easy to miss sending the invoice off in the first place! This can lead to you missing your own bills and payments too, leaving you having to bear the costs of late fees and additional charges.
Not staying on top of your bookkeeping also means you are unlikely to know how much money you are spending and what you are spending the money on. This could lead to you paying for things you no longer need like automatic software subscription charges on your cards, which can add up and impact your overall financial position.
Another consequence of not accurately tracking your expenses is not truly knowing your costs. This can mean you are unable to make strategic pricing decisions as it is impossible to accurately measure your profit margin to optimise your pricing, which can ultimately lead to your business losing money.
4) Financing options become limited
If you neglect your bookkeeping, you will likely struggle to obtain a bank loan if needed down the track. Banks typically use your records and accounts to determine whether they will give you a loan. Therefore, if you cannot provide up-to-date records and accurate data, it is unlikely the bank will be able to make an informed decision on your loan application and likely reject it.
Also, suppose you are in a position where you are looking to bring on an investor or partner into the business. In that case, they will want to see up to date records and financial data for the past few years before they make a final decision. This is another reason why it is essential to stay on top of your bookkeeping to avoid having to pull all this data together at the last minute.
5) Payroll issues start to occur
Another consequence of neglecting your bookkeeping is that payroll errors will ultimately occur. This is a concern as your employees are an integral part of your business. If they are not getting paid correctly or on-time, this will affect your relationship with them.
Keeping on top of your bookkeeping ensures your employees’ benefits, including leave, are tracked accurately and are paid out when they are due. This is important because otherwise, there is a risk of under or overpaying your staff without knowing. You are also at risk of penalties and fines if you don’t pay your liabilities on time (e.g. Payroll tax, superannuation and PAYG Withholding). Did you know that if you make that quarterly superannuation payment late you can’t actually receive a tax deduction for it?!
Don’t neglect your bookkeeping – Get in touch with us today!
Many business owners consider bookkeeping to be a tedious, time-consuming and frustrating task which is why many businesses choose to either not do it or to hire someone to do it for them. Obviously, based on the points above, hiring someone else to do the bookkeeping for you is the better choice. Bookkeepers are trained and knowledgeable about the process. They can save you valuable time and money in the long run and avoid all the consequences listed above.
Having someone you trust to take care of the bookkeeping means you get back time to focus on doing the work you actually want to do – growing your business! If you are interested in getting on top of your bookkeeping, head to this link here, where you can learn more about our fixed-price online bookkeeping and accounting packages.