Common Mistakes: The Cost of Ignoring Bookkeeping

If you were to ask a seasoned businessman to name the most underrated job in any business, they would probably say bookkeeping. Tackling hundreds of bills, receipts and statements, sorting and filing them properly, and recording every transaction is time-consuming and frustrating. It’s not the most glamorous of jobs; in fact, most bookkeepers work quietly in their office, away from the buzz and activity of their colleagues.

However, bookkeeping is also the backbone of any business. Even the most frustrating tasks have the power to make or break your business’s future.

How that’s possible? Let’s take a look.

The Hidden Costs of Ignoring Bookkeeping in Your Business

If you think keeping track of your personal finances is tedious, imagine what it must be like to handle the bookkeeping of a business! The number of people involved, from suppliers, partners, customers, and investors, and the sheer volume of transactions can make even a tiny error a colossal mess. Here is how ignoring business bookkeeping can cost you heavily:

Errors in Income and Expenses

Bookkeeping is not just about filing and storing documents. It is about keeping track of every penny saved or spent by your business for your business needs. But how does one know how much has been saved or spent without proper records? Without a solid bookkeeping system, there are high chances of misreported and inaccurate financial statements. Even if such discrepancies happen, good bookkeeping practices can identify them with regular monitoring and take corrective measures immediately. Such errors can go unnoticed for months and years without a bookkeeper, only to be brought to light during taxation. It can lead to possible penalties for underreported income or even erroneously claimed deductions.

Furthermore, the financial impact such misreported numbers can have on your business is huge. You might let go of growth opportunities, thinking you do not have enough financial resources, or overspend, thinking you have excess. Either way, your business suffers. Such opportunity costs can be more damaging than actual financial costs.

Loss of Efficiency and Productivity

We’ve all been through at least one instance of having to hunt for a missing receipt or statement while filing our personal taxes. The time it takes to look for that piece of paper and the ensuing stress. You know what we’re talking about.

Now imagine having to rifle through all your business documents for that one missing receipt. Scary thought, right? All your employees will likely search for it to save time. And yet, by doing this, you will be cutting down on their productivity and the business’s efficiency. All that time wasted looking for lost documents could have been used for expansion activities, negotiating better deals with vendors, doing necessary market surveys and much more – if only a reliable bookkeeping system had been in place! Such loss of productivity not only costs the business but also affects the morale and enthusiasm of employees, turning into a vicious circle of inefficiency and financial losses.

Poor Cash Flow Management

It becomes difficult to manage cash flows without accurate records of income and expenses. A positive cash flow is a pillar of your business. Incorrect bookkeeping practices can create a sudden shortage or false excess of cash, hampering business plans. Decisions such as investing in new property or machinery or growth plans depend heavily on your company’s cash flow situation. Thus, poor cash flow management can have a deeply and often long-lasting impact on your business operations and opportunities.

Poor Financial Decisions

A proper, duly updated bookkeeping system can give you a glimpse into the business’s past, present and future.  It acts like a kind of health report that outlines how the company is doing, where its strengths lie, where it needs to improve, and more. Based on these insights, you can plan the future of the business and design a blueprint that will pool all its strengths together. However, ignoring faulty bookkeeping practices can act as a road bump in your road to success by giving you inaccurate financial data. Wrong information could make you think you need a loan to stay afloat, unnecessarily adding to your liabilities. Or you might decide to expand the business to another state based on erroneously reported profits.

Good bookkeeping also entails compiling detailed reports and statements to present to potential investors or clients. Hence, ignoring your business’s bookkeeping can also reduce future financing opportunities.

Tax Problems

Business taxation works differently than personal taxation. As a business owner, you are eligible for various deductions, benefits and credits. However, to enjoy these benefits, the business has to produce all receipts, bills, invoices, and other necessary documents.  Filing taxes and claiming benefits would be extremely difficult with no organized bookkeeping system. Without documentation, you could end up paying high taxes – money which could have been put to better use in growth activities. If you declare less income based on wrong data, you will also have to endure audits and pay heavy penalties, which is financially, physically and emotionally draining.   

Impact on Brand Image

Ignoring bad bookkeeping goes even beyond the mere financial aspect of your business. The difficulties arising from improper bookkeeping practices can adversely affect your business’s goodwill and brand image. Misplaced invoices, late payments, wrongly overcharging clients, and irregular financial presentations to investors or customers can sour your business relationships. A trustworthy brand image can open the doors of the future for any business. However, neglecting bookkeeping could end up hurting the foundations of your painstakingly established business. 

While all these scenarios sound scary and disheartening, the good news is that the solution to keeping them all at bay is simple enough – hiring an expert bookkeeper right from the beginning. If your business is already up and running, you can still bring in an experienced bookkeeper who can guide you on the best bookkeeping system for your business needs. Now, with the advancement in technology, bookkeeping has become a lot less cumbersome and a lot more secure, too. By investing in setting up an organized bookkeeping system, you can not only stay away from the above-stated problems but also give your business the resources and opportunities to grow.

Contact DDL & Co. in St. Catharines for Your Bookkeeping Needs

Hire a professional bookkeeper to outsource your bookkeeping requirements so that you can give your business the attention it needs. At DDL & Co., our trained and experienced bookkeepers can provide services to care for all your bookkeeping needs. To learn more about how DDL & Co. can provide you with the best bookkeeping expertise, contact us online or call us at 905-680-8669.