Some of the main reasons for small businesses going under are a lack of funding and proper cash flow management. More than occasionally, these problems result from an inefficient accounting and bookkeeping system that fails to provide actionable insights to entrepreneurs to enable them to make data-driven decisions. Some of the typical consequences of poor business bookkeeping and accounting:
You Remain Clueless About the Numbers
To know how to drive your business forward, you need to know how much you are earning, how much you are spending across each department, and how much it takes to earn each dollar of sales revenue. If your business has poor bookkeeping practices, you will have no idea about these numbers and thus cannot have a clear understanding of the financial health of your business. A robust accounting function will provide accurate and timely financial information, maintain cash flow fluidity, and allow you to make data-driven strategic business growth decisions. According to Forbes, the accounting function is only as good as the data, so you must ensure data accuracy for meaningful analysis.
Business Suffers from Cash Flow Issues
Your business may encounter problems with cash flow without a proper bookkeeping system. You will be unable to track your outstanding dues, fall short of cash, incur overdraft charges, and even run out of money to pay your employees and suppliers. Implementing an automated accounting system can help you stay on top of your income and expenses, generate sales invoices on time, manage your collections, and estimate the cash flow required to keep the business functioning smoothly. With a proper accounting system, you can budget better and manage your cash flows adequately to prevent a crisis from crippling your business, observes the CEO of a reputed provider of bookkeeping services in Denver. Follow the map
Inability to secure funding: Accurate financial records are essential if you want to convince lenders to give you funding to grow your business. Investors and lenders rely on accurate financial records to evaluate the business’s financial health and assess its profitability potential. No lender or investor will want to step in if presented with incomplete or inaccurate financial information.
You Cannot Meet Tax Filing Deadlines
Without a robust accounting system, filing your tax returns on time can be a headache because of the sheer number of records you will need to sift through manually. An otherwise simple job can be a nightmare, requiring you to forsake the running of the business to get ready the financial statements required for filing your tax return. It is likely, you will make mistakes and miss your filing deadlines and incur needless penalties and time-consuming IRS audits. With an efficient accounting system, you will be ready with updated and accurate figures anytime you require them.
Running the business efficiently can be a problem in the absence of a proper accounting system. You will not only not have enough financial information to take strategic initiative but also may make incorrect decisions due to poor-quality or inaccurate data. As a result, budgeting becomes an issue, expenses can get out of hand, and you may make invoicing mistakes and open yourself to internal fraud.