Small-business ownership may not be for everyone, but with the right mindset, approach and confidence, anyone can become one if they so desire. A core component to successfully running a business is the ability to stay organised. Over the course of a day, never mind a year, decision-makers in numerous professions handle just about every document imaginable: invoices, bank statements, payrolls, receipts, cheques, receivables, deliverables and so on. Bookkeeping is a comprehensive way of collecting and collating the compendium of paperwork that are critical to ensuring that a business runs like a well-oiled machine.
From increasing cash flow and productivity to reducing downtime and inefficiency, there are no shortages of advantages to by-the-book bookkeeping. While the benefits to the undertaking may be a sufficient rationale to ensure this task isn't overlooked, the consequences that can result when done poorly may also serve as motivation.
Here are a few of the ways bad bookkeeping can send your business down a wrong path that leads to a dead end:
1. Lose out on valuable tax deductions
One of the beauties of working for yourself is available tax deductions. From miles travelled on a company car to office supplies purchased, many of the things that you buy for business are tax deductible. However, a major caveat to this is that they have to be corroborated. And the only way to do that is by maintaining impeccable records — holding on to all receipts, either in physical or digital form.
If you lose these records or they get misplaced, you lose out on the money that you could have made back by reducing your tax liability.
2. Imbalanced books
Accounting and bookkeeping go hand in hand; you can't have one without the other. Money must be tracked to ensure that costs don't supercede what is earned, but that can happen quite easily when your business falls behind or fails to accurately track certain expenses. By losing track of business profits, it's only a matter of time before your budget is busted beyond recognition.
3. Increases the risk of issues flagged during audits
An audit is an official examination of your financial record-keeping that is carried out by the Australian Taxation Office. Audits are done to ensure that the numbers on the books are accurate and reflective of your business' day-to-day financial dealings.
If you work for yourself or maintain a handful of employees, you could be audited at any time by the government. Inaccuracies and poor record keeping may require further substantiation or the auditor may exclude the tax deduction for your business. These may be innocent mistakes, but that fact may be immaterial to the finding. In short, if your numbers are off, your business could be fined and penalised. The amounts can be in the hundreds if not thousands of dollars. Adding insult to injury, failing an audit may increase the risk of being audited again. And that's assuming that the fines aren't so steep as to cripple your business entirely. Unnecessary stress like this is avoidable by ensuring that your bookkeeping is truly seamless.
4. Potential for cash flow crises
Money is rarely static when you own a business. It's constantly moving in terms of what you spend and what you make back through the purchases of your goods and/or services. Ideally, you'll always have enough cash on hand so you're running a business on a paycheque-to-paycheque basis, but depending on what your needs are, you may need additional cash flow for a significant purchase.
Successful bookkeeping entails timing out when bills are sent out and received so cash flow never grinds to a halt. But that's just what might happen when bookkeeping is mismanaged. Again, depending on your needs at the time, insufficient cash flow can spell ruin for your business or at the very least severe inconvenience, both for yourself as well as your employees, such as if payroll has to be delayed. In short, low or no cash flow can cause a cascade of consequences that are too numerous to mention.
It goes without saying, bookkeeping is truly central to running a productive business. WMC Accounting can help you in this regard. By leveraging technology and experience, WMC Accounting can ensure that your business' administrative needs are fully taken care of so you don't lose out on the opportunities that can be compromised by bad bookkeeping.