Behind every business success, there is a group of people who play different roles that contribute to its success. Bookkeeping is a critical role as it involves producing the numbers that drive decision-making, but it has always been neglected since it’s tedious, difficult to understand, and time-consuming.
In this post, we will talk about how invaluable a bookkeeper’s role is in maintaining a smooth business operation, but when ignored, could lead to these six common problems:
1. You may lose money.
Shying away from bookkeeping tasks will give you no reference as to where your money comes from and where it’s going. This leaves you clueless not knowing that your money is leaking away somewhere which will slowly kill your business.
A good example is a monthly paid subscription for a software tool you’re no longer using. If you happen to audit your expenses just a few times a year it may take months before you realise you’re paying for something that isn’t necessary.
2. You’ll fail to be tax compliant.
Businesses are required by law to file a tax return every year. During this time, business owners who have no bookkeeping process scramble through their desk to sort out or find their financial paperwork.
Without any accurate financial record as your basis for your tax declaration, you risk having tax errors. This may result in paying more tax than you should, or worse, hefty penalties if the tax officer notices errors in your tax statement.
3. You will make poor budgeting decisions.
Most entrepreneurs who struggle with basic accounting and bookkeeping often make the mistake of spending money in all the wrong places.
This type of scenario is often due to poor decision-making, which can be avoided by having a bookkeeper who diligently maintains and provides proper financial and budgeting records.
4. You risk making payroll errors.
It can be tempting to manage your own business payroll yourself, but payroll deserves its own category as your employees’ financial wellbeing depends on it.
Here are some common pitfalls businesses face with poor payroll management:
- You risk losing credibility from your employees if they can’t depend on a regularly scheduled paycheck.
- Rushing employee payments may cost extra due to additional fees.
- You may underpay or overpay employees.
- Your employees may take resources, materials or waste time if not properly compensated.
- There’s a chance you’d sacrifice your own pay so everyone else gets paid.
5. Risk of being less attractive to investors or banks.
To grow and expand your business you will need to apply for a business loan. Banks will likely only grant you a loan if you can show a proven track record of profitability and stability.
Failure to provide the required financial records would only mean two things: Firstly, the bank will have a hard time to make decisions as they don’t have any data to evaluate; Secondly, even if you provide some financial records, if it’s poorly audited the bank will have the impression that you would make late payments or worst miss your payments entirely.
6. You might lose your investors’ trust and confidence.
You may have the best product or service in the market, and you may also have a well-outlined roadmap to show investors about your future goals. But when it comes to gaining your investors’ trust, you will need more than that.
There are strict financial considerations that every investor requires before they invest or continue to invest in a business. One of their top considerations is the financial viability of the business project regarding sustained profitability and return on investment.
The only way you could convince potential investors that you have this kind of financial viability is by showing them a well-managed book as their basis to invest in your project.
Don’t fall victim to any of the above situations—invest in a VA now to help ease your burden in your bookkeeping tasks, and maintain accuracy in all your financial records!