When you’re running a business, every step you take will offer either good or bad outcomes. In fact, most experienced entrepreneurs understand that they sign up to put out several fires when they decide to begin a commercial venture. Sometimes when you take a closer look at all the different ways your business operations might be struggling or your startup may be failing, you might realize that they are usually all the consequences of poor bookkeeping.
Bookkeeping is a critical pillar of a business’s financial management processes. It involves the recordkeeping of a business’s financial transactions, income, revenues, assets, profit, expenses, and other investments throughout its operations. It’s safe to say that a business’s financial future depends heavily on how well its bookkeeping is done.
This makes bookkeeping a crucial task that must be performed proactively, regardless of how big or small a business is. This plays a crucial role in helping you keep the consequences of poor bookkeeping at bay.
Here are a few lasting effects of poor bookkeeping that you should remember.
You’re Unaware of Your Business’s Performance
If there’s one thing that drives a business and keeps it afloat, it’s numbers. From the initial capital to shareholders’ investments, startup expenses, the steady cash flow, and the revenue, your business’s ability to survive and grow in the competitive global market always comes down to how well you’re able to manage your numbers.
Bookkeeping is one of the most effective ways of tracking these numbers and taking further operational steps accordingly. For instance, if you’re aware of how much revenue you’re generating through your services, you’ll have a better idea of how your business is performing and what you can do to take its operations to the next big level.
However, one of the most significant consequences of poor bookkeeping is that it keeps you in the dark about how well your business is doing. Without adequate data, you can’t predict whether your business is going to last or move forward in the anticipated direction.
This is an alarming sign that plays a critical role in many small businesses failing to survive in their initial two years. Therefore, having a bookkeeping system will always improve your business’s transparency and risk management efforts.
A Wide Range of Cash Flow Problems
A company’s cash flow is the difference between its revenues or income and business expenses. These can initially be small and can grow over time as you continue to improve your services. However, cash flow problems are a direct consequence of poor bookkeeping if not managed properly.
The last thing you want as a business owner is to be short of cash, bankrupt, or under a significant amount of debt only because you failed to record all your business’s financial transactions in an accurate and timely manner. These consequences also arise when poor bookkeeping prevents your ability to generate error-free financial reports.
Inadequate Business Operation Strategies
Strategizing is always important in business operations. Whether you’re trying to handle financial restrictions, implement a new marketing campaign, or hire a new team or company department, the outcomes of all of these processes often come down to your ability to develop flexible and practice business operation strategies.
However, a consistent generation of inadequate business operation strategies is one of the many consequences of poor bookkeeping. Inaccurate recordkeeping can misguide you and lead you to make unwise business decisions that won’t benefit your business in the future. This can result in financial losses and jeopardized business growth.
Missed Tax Deadlines
Bookkeeping doesn’t only take care of your business’s financial records but is also an incredibly helpful tool to make you stay on top of your tax game. As a business owner, you never want to be in trouble just because you couldn’t manage your taxes.
Filing taxes usually requires you to go back to financial records created during bookkeeping processes. However, a significant consequence of poor bookkeeping is missed tax deadlines, especially when you’re unable to find the financial information and transactions you might be looking for.
It’s safe to say that efficient bookkeeping is essential for ensuring improved tax preparedness in business, especially when working with a financial management professional.
Endless Unexplained Business Expenses
The consequences of poor bookkeeping are full of disappointing surprises. Many business owners feel shocked and surprised when they finally take a look at their expenses and find their money missing due to various unexplainable reasons.
This happens when your bookkeeping team fails to record all your business expenses and collects receipts and invoices for you to go back to. This is an alarming consequence of poor bookkeeping that can result in massive financial losses that you often can’t afford as a new business in your industry.
High Risk of Internal/External Financial Fraud
As discussed above, the consequences of poor bookkeeping are primarily associated with being unaware of financial transactions, revenues, and expenses most of the time. This doesn’t only lead to misunderstandings and inefficient business operations but also paves the way for internal or external financial fraud to take place in your business.
With inadequate bookkeeping, a significant amount of your company’s funds can end up in the wrong hands, especially when somebody knows about your business’s poor bookkeeping efforts. Well-managed bookkeeping can add a layer of security to your company’s finances without leading to irrecoverable losses at any moment.
Looking for a better way to avoid the consequences of poor bookkeeping for your construction company? You can start by checking out our bookkeeping services for a construction company at 24hr Bookkeeper. We offer highly reliable financial management services for homebuilders, bookkeeping for roofing services, and so much more.
With our commitment to helping your business grow with accurate and on-time financial management, we strive to provide your homebuilding business with nothing but the best, including our QuickBooks bookkeeping systems for construction, payroll services, and more. Contact us to learn more today!
