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

LONG BEACH, CA, UNITED STATES, May 2, 2022 /EINPresswire.com/ -- If a business has financial problems, inadequate bookkeeping may be to blame. A poorly managed or inefficient bookkeeping process causes mistakes, negatively impacting the business. Learn about some of the common issues resulting from poor bookkeeping and the solutions to improve financial practices while minimizing bookkeeping costs.

Consequences of Sloppy Books

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

1.    Cash Flow Issues

If the business is not accurately tracking expenses and accounts payable, it will experience problems with cash flow. It 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 a business' financial records are not up-to-date, they will struggle when filing taxes. They may fail to meet filing deadlines or make expensive mistakes while rushing to complete taxes. Severe consequences for missing tax deadlines can range from costly penalties to IRS audits.

3.    Not Knowing The Business' Financial Health

It is impossible to know a company's financial health without accurate numbers. It is critical to have a detailed accounting of the operating costs of each department, the revenue a 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Outdated, sloppy, and imprecise bookkeeping reports prevent business owners and company leadership from accurately understanding the business's financial health.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

A business will not reach its potential without a sound financial strategy in place. If they are not tracking relevant information through bookkeeping, they 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 a company.

5.    Invoicing Mistakes

Proper invoicing requires exact pricing, time tracking, and collection of payments. Charging clients the wrong price or failing to follow up on late payments without efficient, organized bookkeeping practices, negatively affects the bottom line and customer relationships.

6.    Not in Control of Expenses

Business expenses need to be tracked and approved for reimbursement. If there is no system in place for organizing expense receipts or assigning funds to cover costs, there will not be 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 a business is not accurately tracking employees' time or company expenses, it cannot fully understand 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, a business is 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 the books are disordered, a 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. It 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. 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 needed staff.

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, one can take action to fix 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 concerned about bookkeeping practices, consider one of the following solutions.

Internal Hire

The 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 one to choose from candidates already trusted and familiar with the company practices, lowering accounting fraud risk and creating a faster transition into the role.

Hiring internally can also keep costs down because time and resources will not be devoted 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 there is already one full-time bookkeeper, consider adding another to the team. The 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 a company with auditing services and accounting guidance and explain the tax effects of business decisions.

Most CPAs focus on advanced accounting practices and may not be interested in managing 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 a business to focus resources where they are most needed. The business only pays the outsourcing accounting or bookkeeping firm for the services they provide, lowering bookkeeping service costs.

The company will also save money on overhead costs, as it will not have additional expenses associated with hiring a full-time employee, such as health insurance or retirement contributions. It can also use the outsourcing firm to obtain experienced guidance.

Guy Nicio
Windes
+1 5624530695
gnicio@windes.com
Visit us on social media:
Facebook
Twitter
LinkedIn