Blog

If you ask 100 business owners what they like least about running a business, chances are good that bookkeeping will rank high on the list. It’s an annoying and frustrating chore that takes up a lot of time and is easy to put off until tomorrow.

Avoiding your bookkeeping is dangerous, however. Not knowing your company’s financial situation can result in a series of missteps that could ultimately cost you your business.

Here are three consequences of not keeping up with your bookkeeping.

1. You’ll make poor decisions

You can only make informed decisions about your business when you have a full picture of your current financial situation, including how much money is in your accounts, what your cash flow forecast predicts, and how much money you owe. Without that information, it’s much more difficult to know when you can afford to spend money or when you need to hold back.

Without proper bookkeeping, your decisions will be based on how you think things are going, and that isn’t always accurate. You may have just finished a good month and decide it’s time to hire new employees only to find out you don’t have enough money in the bank to pay them. Waiting three months to hire employees might be more profitable for you in the long run, but you won’t know that because your books aren’t up-to-date.

Maintaining your books ensures you have your company’s full financial picture available to you so you can make smart decisions.  Time and time again, conversations with my clients lead to comments about how they were surprised by the numbers, good and bad, and lead to better decisions for them, and use of their funds available may change because of our reviews. Remember, how you feel or think about results isn’t usually accurate, the numbers help to keep you in reality.

2. You’ll make financial mistakes

Your employees, contractors, and lenders all rely on you to make your payments on time, every time. Payroll itself requires considerable attention to ensure your employees receive their benefits properly.

Not keeping track of your financial books can result in expensive errors being made, including benefits being missed, bills not being paid on time, or over- or under-payments. This could cost you extra in fees for late payments or rushed payments, which also affects your books.

On top of all this, financial mistakes can lead to a lack of trust. You need a trusting relationship with your employees, contractors and lenders. Payment errors can erode that relationship quickly.

(Note: one of the better ways to keep on track is by keeping your bookkeeping up to date, and using the Accrual method.  Accounting software like Xero can help you to stay on track quite easily, it can help you to pay bills on time with it’s integration payment system, and it can even help you find answers more quickly with it’s new AI helper Jax).

3. You’ll lose money

In addition to losing money in unnecessary late fees and payment charges, not keeping track of your books can result in lost money that your business desperately needs.

You won’t know which of your clients or customers aren’t paying you on time, which means you can’t follow up with them or add interest charges for their late payments.  (Xero allows you to send automatic reminders to clients, which in turn helps your cashflow by reducing customer late payments.)

You could be paying too much in expenses and if you don’t reconcile your books you’ll have no idea that money is being wasted. Perhaps you purchased a software program to enhance productivity in the early days of your business. Maybe you stopped using it but forgot to cancel it, so each month for the past few years, you’ve been paying for a service you don’t use.  (We recommend reviewing at least annually your subscriptions to clean up your cash leaks).

Those payments add up and affect your overall financial position.

Final thoughts

Bookkeeping might be many entrepreneurs’ least enjoyable task, but it’s an important one. If you find yourself putting off bookkeeping or dreading doing it, it’s a good idea to look into hiring someone to do it for you. Bookkeepers are trained and knowledgeable in the process, and they can save you valuable time and money in the long run.

Otherwise, be prepared to set aside time regularly to do your books yourself and don’t let yourself put the task off. It’s too important to the future of your business.

Want to get your books in order without adding more work to your plate? Get in touch with us today.