Do you find yourself doing the minimum bookkeeping required to function, handing it off to others, or procrastinating because you aren't sure you're doing it right? If so, you're not alone. But rather than hiding from your bookkeeping, a smart business owner is proactive with it in order to avoid problems.
Most small business owners do bookkeeping — not because they enjoy it or because they're good at it, but because they have to. How can embracing the good, the bad, and the ugly of your bookkeeping help you in the long run? Learn four reasons why proper bookkeeping matters more than you might think.
1. Small Problems Turn Into Big Ones
Small problems can be easy to ignore, but many of these will eventually fester into bigger ones. An employee who skims a little off the top a few times will often become emboldened to take more and more.
A small imbalance in an account each month will eventually add up to a large amount of missing money. Forgetting to bill a single customer could turn into forgetting to bill many customers.
The best way to prevent these big, expensive problems is to catch them when they're small and less costly. You may need to ask more questions, seek out professionals, and accept advice to make changes.
2. You May Be Legally Responsible
Both business owners and employees who handle certain accounting tasks may be held liable for both fraud and errors. One of the biggest examples is your income tax return. When a sole proprietor signs their income tax return, the IRS holds them responsible for everything it contains — regardless of whether or not they knew anything was wrong.
In addition, you may be held personally liable for missing payroll tax remittances, misclassification of employees, failure to buy workers' compensation, or mingled business and personal money. Protect yourself by ensuring that things are done right according to legal and accounting standards.
3. You Could Be Making More Money
If you aren't sure of the accuracy of your books, how do you know what your business is really earning? Are your product expenses correct? Have you billed all customers? Are employees handling cash properly? Are your financial statements right? If you can't answer yes with confidence, you don't know what you may be missing.
The best way to build confidence is to develop a strong bookkeeping system, work with professionals, ask questions, and do research to find satisfying answers or implement better processes.
4. Problems Are Eventually Found
Even though some problems — both intentional and unintentional — may not be found for a long time, they usually will eventually show up. The question is, how do you want them to be found? Do you want the IRS to find them in an audit? Do you want employees to uncover things that cause bad word of mouth? Or do you want future buyers or investors to find them during due diligence?
The answer to all these questions is probably no. So the best approach is to be determined to find potentially embarrassing, expensive, or legally questionable issues yourself and make them right as soon as possible.
Where Can You Start?
Which of these reasons to dig deeper into your books is the most compelling to you? Whether you want to ensure the best profit, prevent fraud and theft, or protect your company's reputation, start by meeting with the bookkeeping professionals at Quality Bookkeeping Services Inc.
We'll work with you to identify your concerns and goals, craft a solid bookkeeping system, and answer all your accounting questions. Call today to make an appointment or learn more.
