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Poor Bookkeeping Impacts Your Business; Know How to Improve
Bookkeeping is one of the most fundamental aspects of any business’s financial side, providing information on areas that generate great profits and those that cause loss. Not only that, efficient bookkeeping helps your business;
- Improve cash flow
- Generate accurate financial reports
- Ensure statutory compliance
- Enhance financial forecasting
Since you need to know in which direction your firm is going and how much capital you need to meet your business objectives, bookkeeping helps you stay informed about what you should do to have enough cash in order to stay afloat.
On the contrary, businesses with poor bookkeeping might face adverse effects on their firm’s financial situation, making it difficult to achieve profitability and growth goals.
Here are some examples of poor bookkeeping practices;
- Unorganized financial records
- Not performing bank reconciliations
- Overlooking issues with bookkeeping basics
- Not monitoring workflows
- Not executing audit trials
In this article, you will get to learn how poor bookkeeping affects your business’s financial management and how you can improve. Let’s begin with understanding the; impacts of poor bookkeeping on your business.
Impacts of Poor Bookkeeping
1. Cash Flow Problems
In the absence of good bookkeeping practices, your business becomes prone to cash flow problems. If your days payable outstanding takes a lot of time or you experience a shortage of available credit or you face overdrafts on accounts, without sound bookkeeping, you cannot improve your cash flow.
With poor bookkeeping, you are missing out on a lot relevant to cash flow, for example, lack of visibility into accounts payable and receivable, inefficient invoice management, less clarity into the company’s financials, etc.
2. Failing to Meet Tax Deadlines
Tax time can turn into a massive headache if your books of accounts are not in order. Poor bookkeeping functions fail to maintain updated records of finances, due to which, you will have huge stacks of receipts and statements to check while preparing for taxes. Things can go even worse when the deadline approaches and you are still busy sorting out your financials.
As a result, you might either fail to meet the deadline or make mistakes as you might be filing taxes in a hurry, leading to fines or an IRS audit. These are also some reasons why many companies hire tax preparation outsourcing services, ensuring accuracy and preventing penalty risks.
3. Exposure to Internal Fraud Risks
It hardly matters how much you trust your staff, your business might be at risk of internal fraud. Your company is at risk of loss owing to internal fraud due to the reasons mentioned below:
- bookkeeping and accounting process
- Improper separation of duties
- Allowing all finance staff to access the company’s confidential financial information
Your business might end up with losses that can even force you to shut due to successful internal fraud attempts.
4. Wrong Pricing – Leading to Less Profit
If you don’t have a systematic process for tracking expenses and employees’ work time, you won’t get to know what your actual total costs are. Now that you are unaware of your expenditure, how would you make pricing decisions effectively?
Not having enough authentic financial information restricts you from measuring your profit margins, leading to failure to optimize pricing that can result in fewer profits. Here, poor bookkeeping brings another problem that keeps you away from determining the true potential of your products or services.
5. Compliance Issues
Bad bookkeeping practices can put your firm at risk of statutory/legal issues. The situation can even turn into a bigger problem if your company has internal and external stakeholders. When you become aware of the mistakes, you would spend more time on their addressal.
Additionally, you would hire an attorney to get help in minimizing your legal penalties. You can blame poor bookkeeping for all these issues that you could have prevented with efficient bookkeeping.
6. Overlooking Financial Performance
What runs your business? Finances, right! When it comes to going deep into understanding all financial aspects and their significance on your business, you need numbers. Numbers that tell you how much your company makes, how much your staff costs you, how much you spend on marketing and sales departments that convert into revenue, how financially sound your company is, and the list goes on.
With poor bookkeeping, you cannot get the accurate numbers you need to understand your business’s financial performance and health.
7. Poor Bookkeeping Results in Poor Decisions
As a business owner, you are responsible for making sound business decisions, for which you need to maintain precise records of your firm’s financial transactions. For instance, you need to review several statements, compare them with previous months’ financials, so that you can conclude them into a clear picture of your firm’s financial status.
If your bookkeeping is not right in the first place, all the information you need would be of poor quality, which will do nothing but ruin your decisions that take a lot of your precious time and energy.
Poor bookkeeping can be costly, time-consuming, and even more devastating than you think. But the good thing is that it can be improved. To leave your poor bookkeeping practices behind, read the following points and learn about;
5 Ways You Can Improve Bookkeeping
1. Save All Valuable Financial Documents
The best way to improve bookkeeping is to ensure the fundamentals are managed right. It is advised to store all important financial documents like receipts and statements so that you can use them as a reference while doing reconciliations.
This will prepare the base for bookkeeping and ensure it is accurate. Make sure you never toss any valuable finance-related documents in the bin and store them for at least 24 months.
2. Keep Different Accounts for Personal & Business Transactions
A big reason why bookkeeping goes wrong is that you might at times use your business accounts for personal expenses. Don’t you? This can result in discrepancies in financials and at the end of the day, this mixture of financial records will take extra efforts and time of yours or your accountants to filter records and obtain the required information.
Always keep different accounts for your personal and business expenses.
3. Frequently Update Accounting
The core purpose of updating accounting records regularly (weekly or monthly) is to ensure there is no room left for inconsistency. Moreover, if you keep updating records as soon as a transaction occurs, you are on the right path for managing accounting work efficiently, streamlining further accounting processes, preparing solid, reliable data you can use confidently.
4. Use the Right Bookkeeping System
If you are using traditional bookkeeping methods, for instance, spreadsheets, and if you think that consumes more time or opens room for errors, it is the best time to consider sophisticated bookkeeping software and experience the difference.
Given several software applications are available on the market, some will fit your requirements and budget. What’s more, the new era cloud-based bookkeeping and accounting systems are fast and affordable, enabling you to view your financial information in real-time and enhance transparency and accountability.
5. Take Professional Support
Business owners dealing with bookkeeping problems due to a lack of knowledge, expertise, or time can outsource bookkeeping services to a trusted firm. Though bookkeeping and accounting chores are cumbersome and require long hours of your accounting staff, leaving them with less or no time for strategic work like forecasting, budgeting, etc. By taking support with accounting from experts, you can rest assured that your accounting is in responsible hands and your in-house team is getting enough time for tasks that have the potential to add value to your business.
How can Cogneesol Help you with Bookkeeping?
Many business owners around the globe are struggling to overcome challenges that usually arise out of poor bookkeeping. If you are also one of those, know that we have been helping business firms improve and streamline accounting since 2008. Our clients come from a wide array of industries and we have the accounting expertise required to support businesses of all types and sizes.
Cogneesol is a leading, globally trusted bookkeeping service provider at your service to streamline your accounting workflow, optimize processes, and bring down costs all while ensuring your confidential data remains protected.
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