10 Consequences of Bad Bookkeeping to Keep Costs Down

Having optimized financial data is vital to operating a successful business. Entrepreneurs need to look at numerous things; only cash flow evaluation does not make sure that you have enough money. While you do budgeting, financial forecasting, etc., you need to keep your accounting books up-to-date to make effective decisions that lead to business growth. Hence, avoiding all the consequences of bad bookkeeping is more important than you realize.

Following are the top consequences of bad bookkeeping shared by industry experts:

1. Missing tax deadlines

Irregular bookkeeping can be a recipe for legal issues, especially where unpaid or late filing of taxes is involved. Putting off tax preparation for later can result in gather-up receipts and documents to sort through. That turns a simple process into a towering task of nearly impossible proportion that requires a great deal of employee labor hours.

In the process, you risk filing your taxes late, making mistakes on your tax documents, and ignoring tax penalties, resulting in a hefty fine and scrutiny from the IRS. Additionally, by maintaining improper records, you lose out on the money you could have made back by reducing your tax liability.

• Sara Graves, Founder

2. Risk of fraud

Hard to think of a bigger risk to bad bookkeeping than the ever rising risk of fraud, both internal and external, the longer the situation continues. As a business owner, if you think you're being smart with adjusted bookkeeping, you had best not have any employees because the more the numbers don't add up, the more risk of graft you run into with others finding a way to fudge the numbers. Worse still if you've got investors because then you're straying into some real dangerous legal waters to help save a few bucks.

• Kate Kandefer, CEO

3. You'll have no clue as to the health of your business

If you're fiddling around with your bookkeeping to keep costs down, there is an excellent chance you've got no real idea of the financial health of your business. This is the start of what will undoubtedly be a fairly problematic downward spiral. Without accurate bookkeeping, you're not going to be able to make the kind of data-driven business decisions that will help you actually grow the business.

• Dragos Badea, CEO

4. Cash flow problems

If the company does not accurately track spending and accounts payable, cash flow problems will arise. As a result, it may be unable to make timely payments, suffer late or overdraft fees, and have other cash flow problems that stymie expansion.

Tax deadlines are not met when a company's financial documents are outdated, and it will be difficult to file taxes. As a result, they may miss filing deadlines or make costly errors while hurrying to do their taxes. Missing tax deadlines can have serious repercussions, ranging from hefty penalties to IRS audits.

• David, Founder and CEO

5. Harms your chances of being acquired

One major consequence of poor bookkeeping is that it can significantly harm your business's chances of being acquired. If you want to sell your buiness in an exit transaction, your books need to be squeaky clean. If your financials are a mess as a result of bad bookkeeping, particularly with respect to keeping costs down, this alone could kill a deal. Clean, verifiable financials breed trust and transparency with suitors, especially with regards to your expenditures. One major thing potential buyers look for is how lean your company is running and if there are ways they can save costs. If your books are a mess and it looks like you have cost overruns, they may pass.

• Carson Lang, Co-Founder & COO

6. Ignore the close of the month

A "close," in my perspective, is when you go over every line on the balance sheet & make any necessary changes. Finally, the review period is set in stone and cannot be amended. This should ideally be done at every month end, as soon as the month ends.

• Jonathan Merry, Director at Bankless Times

7. Dont' penny pinch; hire right the first time

You can end up wasting money by trying to save it. Not all forms of accounts are made the same. Just like you wouldn’t hire a car mechanic to work on your washing machine, you need to make sure you’ve got the right accountant for your business needs. Don’t rush to hire an accountant based on price alone. Identify what accounting services you need, research the type of accountant that can do the job, and don’t cut corners on properly certified individuals due to cost concerns. Having the job done incompletely or wrongly will end up costing you far more down the line.

• Caleb Ulffers, Co-Founder & CEO

8. Buying accounting software without thorough planning

Throwing caution to the wind is not the best idea when it comes to selecting the best accounting software for your business. You must carefully evaluate your accounting needs and business goals and only then shortlist the best systems. Moreover, it’s critical to ensure you have the right staff on board to implement the software. Otherwise, everything will go in vain. This is among the costliest accounting mistakes entrepreneurs fall victim to.

• Kamyar Shah, Fractional COO

9. Hire incompetent help

The fact is, accounting is not like operations. With the latter, you can quickly tell when and where things are going wrong. With the former, it’s not quite that easy. If you don’t understand accounting, how can you tell if your accounting staff is or is not competent? They might be making high profile errors that slip under your radar. So it’s critical that you hire experienced, qualified individuals to run your accounting department.

• Kamyar Shah, Fractional COO

10. You are unable to strategize

I believe that strategy is fundamental to the functioning of a successful firm and you must have a vision for your business's future and a plan or operating framework to help you get there. A well-functioning, efficient back office must be a crucial component of this operational framework. Regardless of whether you're attempting to create goals for the following year, quarter, month, or week, an insufficient accounting plan will impede your progress. Not only does a poorly managed back office prohibit you from accomplishing your objectives, but it can also make it difficult to set objectives, monitor benchmarks, and assess progress.

• Andrew Priobrazhenskyi, CEO

Conclusion

With poor bookkeeping, your business can lose valuable tax deductions, lead to negative cash flow, inaccurate reports, and missed transactions that can lead to losing money. If you find it challenging to manage your record-keeping or struggle with messy books, hiring virtual bookkeeping services helps to manage it efficiently.