What Happens If You Do Not Practice Small Business Bookkeeping?
Small business owners seem to juggle too many balls. Hence, it can be intimidating for them to understand that bookkeeping is an integral part of running a business successfully. For many businesses, bookkeeping is perhaps one of the least favourite tasks. They’d skimp on this core function until the tax season arrives- finishing it off in haste. However, not doing small business bookkeeping may have significant repercussions.
Why is bookkeeping important for small businesses? What happens if you overlook this important business function or aren’t aware of the dos and don’ts of bookkeeping?
5 Risks of Not Doing Bookkeeping: How Your Small Business Can Be Affected?
Not following bookkeeping practices can have significant effects on your business. Additionally, you will not know how your business is performing. Seven things may happen if your small business accounting falls behind.
1. Your Financial Records Will Become Unreliable and Inaccurate
Not following small business bookkeeping practices means your accounting records are not updated regularly. Hence, this business-critical financial information becomes unreliable and outdated. You will not have a clear picture of your cash flow – assets and liabilities.
Since it becomes difficult to identify and classify your fixed and variable costs, your company’s breakeven point becomes obscure. You will not have a clear understanding of the company’s financial feasibility. When you cannot measure cash flow, vital components like variable expenses, overdue invoices, and inventory can be obscured.
To put it simply, without small business bookkeeping, you will not have any financial record to refer to in case discrepancies arise.
2. Inability to Monitor Your Invoicing Cycle
Not keeping track of your invoicing cycle through bookkeeping makes it difficult to organize outstanding invoices. It will be harder to remember where you owe money and when. Hence, you will not be able to follow up with your clients for payments. Inability to track your outstanding invoices may have significant implications on your company’s financial health. In many cases, your business may go without funds due to a lack of invoice payments at the right time.
3. It Becomes Trickier to Manage Your Expenses
Not having a proper small business bookkeeping system for your small business can have other financial repercussions too. You may risk losing money through steady leaks in the long run. You are likely to forget and record small expenses. Over time, these can add up to a huge amount of money.
This often results in overstating your expenses, which can cause significant problems during an audit. Alternatively, there can be unclaimed tax deductions, and you will pay significantly more in taxes.
Using the best bookkeeping software for small businesses can help track your cash flow and expenses organized and automated. This enables you to monitor and improve the financial health of your business. It would be best to consider hiring an expert accounting firm that follows the best industry practices for bookkeeping.
4. Poor and Impractical Budgeting
Your company’s financial planning and budgeting depend, to a large extent, on the accuracy and reliability of your information. Without a proper small business bookkeeping system, you may spend hours gathering all your receipts and adding up the receivables and expenses. As such, inaccuracies may creep in. You will not have accurate, clear, and organized financial records.
This makes it difficult to review historical data so that you can come up with a plan or budget for the future. Budgeting requires a thorough understanding of your business's financial health in the past. Unless you practice bookkeeping, areas of overspending or cost savings may not show up. This results in poor budgeting and may have severe consequences on your finances.
5. Not Filing Taxes Properly
Business taxes can be intimidating and time-consuming, especially for small businesses. The process becomes even scarier when you do not maintain books or have an accounting firm to file your taxes. Hence, you will need to go through bulk documents, receipts, and invoices to gather accounting information for tax filing. This can be laborious and inaccurate too. Inability to file your taxes properly may also result in IRS audits, causing penalties for discrepancies.
If you are struggling with your small business bookkeeping chores, the ideal solution is to hire professional bookkeeping services in the USA. When your bookkeeping is efficient and sorted, you are better equipped for a definitive financial plan, tax strategy, and budgeting.
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