Business clearly isn’t only about numbers. But numbers do matter significantly. If cash flow and profit numbers don’t work, there is just no business. Thus, as it has frequently been said, “Know your numbers.” Gathering and recording the business’ numbers are key duties of your bookkeeper, so to get the data you need to make good decisions, it is critical not to do business bookkeeping wrong.
What is Bookkeeping
Every business should have current, organized, and reliable data. That data is the foundation upon which all financial reports are based, and it is vital to the successful operation of a business. The bookkeeping function is responsible for recording all business transactions, including entering and categorizing all expenses, paying bills, and verifying receipts. invoicing customers, and depositing payments into a bank account.
Bookkeeping is important for businesses because financial records facilitate good budgeting and planning. Bookkeeping provides information that is used by various parties to analyze the business including accountants, the management team, investors, and lenders. Doing business bookkeeping wrong contributes to poor decisions and poor business outcomes.
The Benefits of Good Bookkeeping
Good bookkeeping saves time because accurate data can be readily available instead of tracking down information and cleaning up information messes. It reduces errors and builds confidence in management. Good bookkeeping helps business leaders and owners to allocate budget funds efficiently. It fosters trust in the leadership team and lessens stress on all parties. It reduces the chance of issues of tax compliance, and it improves cash flow.
Poor bookkeeping practices can result in being turned down for business financing. It can lead to inventory shortages. It can lead to tax problems due to unreported or under-reported revenues, investment income, and other types of earnings. It can result in late payments to your creditors along with the cost payment penalties. It can impact payroll and thus create issues with employees. And it can result in problems with banks like late fees and overdraft fees. Doing business bookkeeping wrong is not a good way to build a business.
What Can Happen if I do My Business Bookkeeping Wrong
The following types of things can happen if you do your business bookkeeping wrong.
First, you won’t have good information on which to examine and understand the workings of your business. You won’t have confidence in the information that you will need to rely on.
Second, without good data, your ability to make wise strategic decisions is greatly impaired.
Third, you may find difficulty in managing expenses because bookkeeping tracks expenses and reimbursements. Bad expense tracking compromises your ability to categorize expenses and thus allocate costs. And you can incur some unnecessary expenses.
Fourth, you may have invoicing mistakes and not even know it.
Fifth, you can be at a high risk for internal fraud.
Sixth, you may experience serious cash flow problems.
Seventh, you may miss critical tax deadlines and experience compliance issues, thus incurring painful penalties.
Eighth, you won’t have a good handle on costs, so you may make suboptimal pricing decisions.
Ninth, you will have difficulty improving your organizational culture because you are mired in uncertain data quicksand.
Good Bookkeeping Practices
Use good bookkeeping practices to help set your path to success. Make sure that the right accounting method is used. Create a clear chart of accounts and keep all revenue and expenses properly categorized. Enter accurately all transactions and in a timely manner. Contribute to the effective use of financial statements. Rigorously monitor accounts receivable.
Outsource Your Business Bookkeeping
Outsourcing your business bookkeeping is a great way to improve your financial record keeping and avoid the problems of doing bookkeeping wrong. It can be more cost-effective than hiring, training, and maintaining a full-time bookkeeping staff. It can also free up valuable management time to focus on growing your business.
Get Expert Bookkeeping, Accounting, and Financial Assistance
Trust Doerhoff & Associates, CPA, based in Jefferson City, MO for accurate bookkeeping and accounting services. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.