The Cost of Not Maintaining Your Books

Most small business owners are focused on one thing – running their day to day business, serving their customers and making money.  The tedious task of organizing and maintaining accounting records can easily fall to the side.  It’s not because these small business owners are lazy.  It’s because they are being pulled in so many different directions on a daily basis that entering in expenses or reconciling a bank statement sometimes drops down the priority list.

If a company gets behind on its books, it can have other ramifications that could cost the business money.  Here are just a few of those effects:

Missing out on potential tax deductions

Without an organized set of books, it can make tax time a lot more challenging.  If you’re going through a box of receipts on an annual basis, chances are you are missing out on some expenses that never made it to that box.  Being organized with your books will ensure that you are getting credit for every expense that you incurred and lowering your tax bill as much as possible.

Potential audit issues

If your books are in disarray and you were to be audited by the IRS or someone else, it’ll make it a lot more difficult to support your transactions.  This could result in owing additional taxes or penalties.

High cost of cleaning up books

Once you get behind on your books, one option is to hire someone to clean up the mess and this may not be cheap.  Depending on how far back an accountant may need to go and number of transactions you’re dealing with, the potential costs could add up quickly.  It is cheaper to pay someone to assist you with your bookkeeping than trying to clean up the books later.

Not knowing your financial status

I’ll sum it up this way – it’s not easy to make money if you don’t know how much money you’re making.  In order to grow your business and ensure that you’re generating profit, you need to know how much money you’re earning and where your money is being spent. 

Could prevent you from obtaining a loan

Let’s say that a potential business opportunity pops up that is too good to pass up, but you don’t have the cash to invest.  You’ll need a loan, and in order to obtain that loan, a lender may want to make sure they are lending money to a profitable business.  If you cannot easily go into your books and pull out a profit & loss statement or balance sheet that shows that your business is in good standing, then you may have some work to do.

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The best way to prevent these potential problems is to make maintaining your books a priority.  Set time aside on a daily or weekly basis to make sure all expenses are entered into whatever accounting system your business uses.  And if you need assistance, hire someone who can take some of the burden off of your shoulders and allow you to spend your time doing what you know best – running your business.  If you don’t, it could cost you down the road.