Consequences of Falling Behind on Your Books

Bookkeeping is one of those tasks that small business owners love to hate. It’s a necessary evil; keeping on top of your books provides a number of benefits, but the lure of those benefits often simply doesn’t outweigh the tedium. So, for many small business owners, small business accounting updates happen once a year – in the mad scramble to get your taxes prepared.

Falling behind on your bookkeeping creates a number of problems. You need to understand the consequences of falling behind and take action today to get on top of your books and stay on top of them.

Here are some reasons you don’t want to get behind on your small business accounting:

• You Simply Don’t Know How Well Your Business is (or isn’t) Doing

When you’re in small business, it’s easy to get distracted by watching funds flow into your business. In many cases, a $10,000 sale feels like you’re making $10,000 – even if your actual profit is significantly lower. You can wind up with something of a false sense of security in your business’ well-being.

It’s important to stay up to date on your small business accounting so you know exactly how your profit or loss is looking for the year. This lets you properly plan your tax strategy, for example. In addition, regular accounting can provide you with important business intelligence – such as how certain products are faring in the marketplace, and where there might be room for improvement.

Keeping up on your business means keeping up your small business accounting.

• Cash Flow Crunches

The more your business grows, the more capital you typically have to front in order to help it grow. This is a good kind of problem to have; you’d much rather be scrambling for cash to invest in your business than scrambling for sales.

Yet, a growing business needs ever-growing capital. That means knowing where you stand at any given moment. You might need to order $20,000 in materials, but you may only have $5,000 in your business account. That creates a major problem in that it delays your production and delivery.

If you were on top of your small business accounting, you’d know that you need to charge your client a deposit, get some investment capital, or find some other way to cover those expenses associated with your rapid growth.

The bottom line is that a business won’t operate effectively if the money isn’t flowing.

• Missed Tax Savings

This is one of the most compelling reasons to keep up on your books. During certain times of the year, it makes more sense to make certain purchases or investments. Some of those purchases or investments are going to have tax consequences. By staying on top of your small business accounting records, for example, you can know exactly how much additional equipment you can purchase that then can be depreciated at tax time.

In addition to missing out on tax savings, not keeping up on your small business accounting leads to guessing on certain elements of your taxes. This is a dangerous thing to do; one wrong guess or one guess that you can’t properly document, and you could be looking at severe fines and penalties after an IRS audit.

If you want to realize the largest possible tax savings, keep up on your books and check-in several times through the year with your tax professional.

Getting Started on the Long Road of Recovery

Many small businesses find themselves facing a mountain of bookkeeping, and may not even be sure exactly where to start. You know you need to update your books, but you feel like there’s not much you can do to salvage the situation at this point.

Fortunately, all hope isn’t lost. You can start on the road to recovery by following these basic
steps:

  1. Analyze your situation. Know how far behind your bookkeeping is so you know where you’ll have to start.
  2. Recruit some help. Ideally, you’ll bring in an accounting professional with tax expertise who can help you piece together all of that missing information. Not only that, but she can also help you make a plan of attack going forward.
  3. Start keeping current books. Even if your books aren’t caught up, start from today and keep an accurate accounting of your business’ money.
  4. Implement policies and procedures to take you forward. Once things are current, don’t let them fall behind again.

Small business accounting can be tedious and it can be difficult, but catching up your books and staying on top of them will have a huge payoff in the long run.

Talk with a tax professional today!

[IMAGE CREDIT: Some rights reserved by Jerry Bunkers]

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