The practice of good bookkeeping is essential to the success of any business, as it provides precise financial information that can be used to track income and expenses, assess profitability, and make informed decisions about where to allocate resources.
If you don't keep accurate books, you may be subject to a number of penalties. This guide covers in more detail the various penalties you may face, tips on how to avoid these penalties, and the best ways to keep accurate books.
The Risks of Inaccurate Bookkeeping
Let's shift our focus to the disadvantages of inaccurate books and explore what each one entails:
If you don't keep accurate books, you’re at risk for penalties. For example, if you were audited, they would likely find that you owe back taxes, and you would likely be on the hook for any penalties and interest charges that accrue. They may also find other inaccuracies in your finances.
2. Difficulty Operating
Companies that don't have a sound financial system in place and accurate information at their fingertips often find it difficult to operate effectively. This can lead to problems such as cash flow issues and mismanaged resources.
3. Difficulty Obtaining Financing
Banks and other lenders typically require businesses to provide financial statements to obtain financing. If your books are inaccurate, you may have difficulty obtaining the financing you need to grow your business.
4. Difficulty Selling Your Business
If you’re looking to sell your business down the line, potential buyers will need to know the state of your business’s finances. Buyers will typically require financial statements to assess the business's profitability and make an offer. If your books are inaccurate, it may be difficult to sell your business.
5. Missing Out on Tax Deductions
Businesses that don't maintain their financial records often miss out on valuable tax deductions. This can increase tax liability and leave business owners with less money to grow their businesses. In addition, the last thing you want is to overpay your taxes because you didn't keep accurate records.
6. Mismanagement of Employee Expenses
Managing employee expenses and payroll will likely be challenging without accurate finances. This could result in inaccurate payments and a decreased profit margin. Your employees expect their payroll to be precise, and they expect to get paid on time.
7. Difficulty Preparing Tax Returns
Taxes are often a troublesome area for many business owners, and it's certainly understandable why. After all, taxes can be confusing, time-consuming, and challenging. However, if your records are inaccurate and you fail to file promptly, you may face penalties come tax time.
8. Losing Credibility With Customers
If your customers don't have confidence in your ability to keep accurate bookkeeping records – whether it’s because their receipts are often incorrect or they’ve heard about it from others – they may take their business elsewhere.
How Can You Stay on Top of Your Bookkeeping?
Now that we've discussed the disadvantages of poor bookkeeping, let's explore how you can stay on top of your bookkeeping as a busy business owner:
Use Bookkeeping Software
The benefits of bookkeeping software are numerous. Businesses that use bookkeeping software can save time and money while keeping accurate financial records. The right software can streamline many of the processes involved in bookkeeping, making it easier for you to see where you stand financially.
One of the best ways to maintain accurate financial records is to stay organized: record all income and expenses, and organize receipts and invoices so they’re easy to find when needed.
Understandably, this can be a time-consuming and daunting task for small business owners. This is where outsourcing to a professional bookkeeping service can be highly beneficial to the success of your business.
Review Your Books Regularly
It's important to review your books regularly. This will help you catch any errors or discrepancies. Additionally, reviewing your books regularly will help you stay on top of your financial situation. This is another area where many businesses prefer to outsource to a professional bookkeeping team.
Train Employees on Bookkeeping Procedures
A critical element in keeping accurate books is ensuring all employees involved are trained effectively. Any financial team members should be properly trained on inputting and reconciling financial information. This will help ensure that all transactions are recorded accurately.
Work With a Professional Bookkeeper
If you don't have the time or expertise to maintain accurate financial records, you may consider hiring a professional bookkeeper. Professional bookkeepers can save you significant time and stress, enabling you to focus your efforts on other business-critical tasks. Moreover, they can help ensure that your financial records are accurate and up-to-date, ensuring you avoid the disadvantages discussed above.
LedgersOnline’s Bookkeeping Solutions
At LedgersOnline, we specialize in helping businesses with their bookkeeping needs. We offer various services, including payroll, sales tax reporting, bank reconciliation, accounts payable, and more. We work with clients across many industries and have the experience needed to provide you with the most accurate and efficient services.
When you work with us, you’re assigned a dedicated bookkeeper that will manage your books. We’re also software agnostic and can connect seamlessly with the bookkeeping system you’re currently using.
Contact us today to learn more about how we can help your business.