Bookkeeping is an essential part of running a business which helps many businesses find great financial success. However, it can be time consuming and tedious for many business owners, especially those who find bookkeeping is not their strong suit. Due to this, it can be extremely easy for business owners to put the bookkeeping by the wayside and procrastinate completing it. But this is a pitfall that can lead to disaster.
Great bookkeeping can save many businesses from making major mistakes and help them become profitable. Here are 4 things that can happen if you neglect your bookkeeping.
1. Unable to take opportunities
Information is vital in business. You should always know how your business is performing, your financial state, accounts requiring reconciliation, and more. Without this data, you can’t make smart decisions for your business. If you do not have a cashflow forecast it can be difficult to know whether you can afford to hire new employees or buy much needed equipment. There are massive levels of risk that you could make a decision that unknowingly burdens your cashflow.
This is why we use Xero with our clients. It provides real time information, giving you the data about your business which you need to make great decisions to grow your business.
2. Cashflow may run low or dry out
Bookkeeping is vital for tracking your receivables so you can know where and when money is coming into the business and going out. This can be useful for knowing who has received an invoice, who has an outstanding invoice, and when they are paying. It can be also good to know when you need to chase up any unpaid invoices. Many customers may not need to know when they are required to pay until they receive an invoice, and others may not pay until you chase them up.
Without doing your bookkeeping it is also possible to run into problems with paying off debts or your suppliers. This can damage the relationship and may cause problems in the future. You could end up paying unnecessary things, or the wrong debts which you won’t notice until you receive your credit card statement.
3. Payroll errors may happen more often
Your team is the engine that drives your business. It is important to keep these people happy as they are pushing your business forward. Apart of this is getting payroll right. A part of doing your bookkeeping is ensuring your employees are being paid on a regular schedule, their benefits are tracked, and pay is distributed accurately. In not handling payroll correctly you could open your business up to a few problems. These include failure to collect the correct taxes, you could overpay employees who may not report being overpaid, or you could have to rush payment to employees.
Errors such as these can have a major impact on your business. Not only will it strain your relationship with your team, but it could also open you up to fines from the government for failing to pay the correct taxes.
4. Reduced ability to raise money
At some point, your business may need financing from a bank or financial institution. To get a loan from one of these institutions it is vital that you have accurate, up to date records to show how your business is performing. Without accurate records, banks may not trust you, making it difficult to find the right line of credit for your business. If they do provide you with a loan it may be under unfavourable conditions.
A lack of bookkeeping can also make it easy to miss repayments or force you to make late payments. This could damage your credit score, making it harder again to raise money for your business.
If you look to raise money from investors, they will also ask for detailed financial records. Lacking this data could cause you to lose their interest.
Bookkeeping is a vital part of any business. It affects so many different aspects which can either make your business easier or harder to run, depending on how well you complete it. If you are looking at ways to make your bookkeeping easier, one place you can start is with Xero. Our clients love working with Xero as it is easy to use, yet still powerful. It makes bookkeeping far easier.
Another way you can improve your bookkeeping is by working with a professional bookkeeper. They can help you get your bookkeeping under control while providing major benefits to your business. Come have a chat with Link Strategies and see how we can benefit you.