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Avoid These 10 Consequences of Bad Bookkeeping to Keep Costs Down

At a Glance

Main Takeaway

Understand these 10 consequences of bad bookkeeping practices and how to avoid them to keep costs down.

Next Step

Consider outsourced bookkeeping services from Windes.

 

If your business has financial problems, inadequate bookkeeping may be to blame. A poorly managed or inefficient bookkeeping process causes mistakes, negatively impacting your business. Learn about some of the common issues resulting from poor bookkeeping and the solutions to improve your financial practices while minimizing your bookkeeping costs.

Consequences of Sloppy Books

If your company does not manage your general ledger properly, you may have trouble running day-to-day operations or face irreversible setbacks. The most common signs that poor bookkeeping is the source of your problems include:

1.    Cash Flow Issues

If you are not accurately tracking your expenses and accounts payable, you will experience problems with cash flow. You may be unable to make payments on time, incur late or overdraft fees, and have other cash flow issues that hinder business growth.

2.    Missing Tax Deadlines

When your business’ financial records are not up-to-date, you will struggle when filing taxes. You may fail to meet filing deadlines or make expensive mistakes while rushing to complete your taxes. Severe consequences for missing tax deadlines can range from costly penalties to IRS audits.

3.    Not Knowing Your Business’ Financial Health

It is impossible to know your company’s financial health without accurate numbers. It is critical to have a detailed accounting of the operating costs of each department, the revenue your company brings in and from where, and the operational costs per dollar of income.

Outdated, sloppy, and imprecise bookkeeping reports prevent business owners and company leadership from accurately understanding the business’s financial health.

4.    Lack of Financial Strategy

Your business will not reach its potential without a sound financial strategy in place. If you are not tracking relevant information through bookkeeping, you cannot create long-term financial goals or benchmarks to meet.

Accurate weekly, monthly, quarterly, and annual financial reports are necessary for developing a financial strategy that benefits and grows your company.

5.    Invoicing Mistakes

Proper invoicing requires exact pricing, time tracking, and collection of payments. You may charge your clients the wrong price or fail to follow up on late payments without efficient, organized bookkeeping practices, negatively affecting your bottom line and your customer relationships.

6.    Not in Control of Your Expenses

Business expenses need to be tracked and approved for reimbursement. If you do not have a system in place for organizing your expense receipts or assigning funds to cover your costs, you will not have a clear picture of the company’s spending habits. Excessive expenses can quickly spiral out of control and reduce revenue.

7.    Cannot Make Strategic Pricing Decisions

If your business is not accurately tracking your employees’ time or company expenses, you cannot fully understand your costs or profit margins. Not having a clear picture of these essential expenses can prevent business owners from developing a pricing strategy that optimizes profits. Having poor pricing models eventually leads to cash flow complications.

8.    Risk for Fraud Increases

Without current bookkeeping policies in place, you are at risk for internal fraud. Employees who are not kept in check through accounting oversight or separation of powers can take advantage of their position and embezzle funds.

9.    Lose Money to Fees

If your books are disordered, your business will likely lose money to fines and penalties, such as overdraft fees, penalties for going below the minimum required balance or late fees from vendors and other financial institutions. You could also face tax penalties for inaccurate reporting, record-keeping problems, or non-compliance.

10.  Workplace Culture Suffers

A poorly run office does little to boost employee morale or encourage efficient work in other departments. Your workers may feel frustrated by time-consuming issues that result from bookkeeping problems. Cash flow difficulties can lead to late employee paychecks or the inability to hire the staff you need.

Businesses are not the only victims of poor bookkeeping practices. Even major cities have lost millions of dollars due to inadequate accounting. Consider the Philadelphia Inquirer example where the city made accounting errors totaling $924 million in the 2017 fiscal year alone.

Fortunately, you can take action to fix your bad bookkeeping practices.

Correcting Bookkeeping Problems

Sloppy bookkeeping can result in severe consequences such as an audit, bankruptcy, halting of services, or the permanent closure of your company. If you are concerned about your business’ bookkeeping practices, consider one of the following solutions.

Internal Hire

Your business may already employ a part-time bookkeeper or other staff with accounting or financial experience. Consider developing a new, full-time bookkeeping role for an existing employee. Making an internal hire allows you to choose from candidates you already trust and are familiar with your company practices, lowering your accounting fraud risk and creating a faster transition into the role.

Hiring internally can also keep costs down because you will not have to devote time and resources to outside advertisements, interviewing candidates, or thoroughly researching their credentials. However, there are still some overhead costs, including health insurance and other employee benefits.

If you already have one full-time bookkeeper, consider adding another to your team. A second set of eyes can catch errors, help to prevent fraud, and take over the position if turnover occurs.

Use a CPA

A Certified Public Accountant (CPA) must meet rigorous education, experience, and exam requirements to earn their license. They also adhere to a code of professional conduct that requires maintaining objectivity and integrity while working with clients. A CPA can provide your company with auditing services and accounting guidance and explain the tax effects of your business decisions.

Most CPAs focus on advanced accounting practices and may not be interested in managing your bookkeeping needs. The hourly rate for CPAs is also considerably higher than standard bookkeeping rates since they have a higher level of education and experience.

Outsource Your Needs

Outsourced bookkeeping services allow your business to focus resources where they are most needed. You will only pay the outsourcing accounting or bookkeeping firm for the services they provide, lowering your bookkeeping service costs.

Your company will also save money on overhead costs, as you will not have additional expenses associated with hiring a full-time employee, such as health insurance or retirement contributions. You can also use the outsourcing firm to obtain experienced guidance for various accounting and bookkeeping issues when needed.

Keep Your Business Costs Down With Windes

Outsourcing your bookkeeping ensures your business finances are accurate and up-to-date while freeing up time and reducing overhead costs. Private companies of all sizes can benefit from bookkeeping services tailored to their needs and budget.

If your business is having cash flow problems, struggling to meet tax filing deadlines, or suffering from poor workplace morale, Windes can help. Our outsourced bookkeeping team offers expert guidance and management of your finances. We can ensure accurate transactions, help with cash management, reconcile bank statements, maintain your general ledger, and prepare financial reports. Our team also works with a range of technology and software to help streamline bookkeeping and tax filings.

Contact our Los Angeles, Long Beach, or Irvine offices today for a customized bookkeeping plan to fit your needs.

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