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How Can Bad Bookkeeping Destroy Your Business?

Professional bookkeepers are working everyday on book work for a variety of small business owners. They see patterns, they notice trends, and they have the benefit of experience behind them that you can take advantage of in your small business.

For some small business owners, bookkeeping is seen as an expense for the business. There’s a common misconception that you can save money by doing your own bookkeeping. Another cost-cutting practice is to hire a cheap bookkeeper or having inexperienced staff doing it for you, without understanding the damage can have on your business.

Some of your friends may have their spouse or relatives doing the book work for their business thinking they are helping out. Who would think that helping out by doing the book work could destroy your business?

How Can Bad Bookkeeping Destroy Your Business?

Without having a full understanding of your finances, you may find yourself quickly adding to the number of businesses that fail within a few years of starting up. Establishing some simple procedures and good bookkeeping combined with all your hard work will more than compensate the investment of a spending a few extra dollars each week or month on bookkeeping.

By the time business owners contact us we’re faced with a set of books that have been incorrectly completed. There’s some absolute crackers of mistakes that can have devastating effects on cash flow. It is only then that the business owner realizes that cash flow is the heartbeat of your business, and the control of cash flow is an important part of bookkeeping.

When the business collapses no one blames the bookkeeper. There’s always a heap of other reasons such as problems with the cash flow, or being unable to pay the bills, suppliers no longer providing stock, and so on.

Often business owners rely on their accountant to give them a summary of how their business is performing, without thinking that often the figures the accountant is looking at are over twelve months old.

Many problems faced by businesses relate to the lack of adequate systems and procedures for financial record-keeping. By having these systems in place and keeping ahead of your bookkeeping, you are in a better position to see what is happening with the cash flow of your business. You can determine which bills have remained unpaid, which customers owe you money, and how much money you owe your suppliers.

Recently, a major electrical retail chain collapsed through a combination of over expansion, lack of cash flow, and a dishonest bookkeeper stealing around $20 million on the eve of the global financial crisis.

A small mistake through lack of bookkeeping experience can be extremely costly to a small business, so saving your money through hiring those inexperienced bookkeepers will often and/or frequently lead to large expense down your business track that would have been prevented.

By focusing more on your financial record keeping and having a good bookkeeping system in place you should never discover how bad bookkeeping can destroy your business.

Bookkeepers that do not have sufficient experience don’t always understand the importance of financial management in a small business and the necessity to keep accurate and up to date accounting records.