If you are a business owner, you know how busy and fully occupied your day can be when overlooking your business operations. There is so much to be done and numerous things to be looked after. With the tasks that need to be fulfilled and your clients demanding your attention, the last thing you want to think about is bookkeeping. With loads of expense receipts, invoices, and other piled-up paperwork, you are likely tempted to put your bookkeeping obligations off until tomorrow or next week.
Many small business owners (SBOs) try to save their costs by taking responsibility for their bookkeeping on themselves instead of appointing a professional bookkeeper. There’s no harm in doing it yourself, provided you have the time and knowledge to do so. However, small business owners must understand that inaccurate bookkeeping will cost them plenty.
Bookkeeping is not necessarily complicated. Small and mid-sized business owners should make it a point to reconcile their books weekly or even daily. In the end, this will prove to be much more profitable. Here are why it is essential to reconcile your books every week.
Conceals The Positioning Of Your Business
Your books offer a picture of the financial viability of your company. Without updated and accurate records, the picture will be blurry and fuzzy. Inaccurate bookkeeping will lead to inaccurate cash flow reports.
This is why it is important to maintain your bookkeeping accounts frequently. It could be that your business is struggling financially, and you cannot see the root cause of the problem. What’s worse is that you might not know about an issue in your business.
Causes Pricey Mistakes
Miscalculating costs or profits because of lousy bookkeeping can be disastrous for you. If you overestimate your profits, your taxes will increase when you file for them. On the other hand, underestimating your profits might result in an audit. Miscategorizing your assets (for example, fixed assets) and expenses may result in you paying excess taxes.
Having exemptions, deductions, or expenses that are not adding up and filing your taxes late ends up with the IRS conducting an audit of your company. Also, any irregularities in the audit will have penalties that go along with them.
Tax Deductions Decrease
To claim your taxes, you need to document your expenses. Overlooked or misplaced receipts prevent you from claiming all of your costs. If you do not have your bookkeeping records set straight, your accountant can’t help you spot your eligible deductions. Make sure that you get every tax advantage that is rightly deserved. This can only be done when you reconcile your books frequently.
Payroll Issues
With all other financial aspects, your payroll will also be affected because of your inaccurate records. It can be that you are overcompensating or undercompensating the paychecks or benefits of your employees without even knowing it.
Invoicing Cycle Increases
If your business books are not reconciled, you cannot tell who and how much you owe. If left unattended, you must spend much of your valuable time organizing and sending the invoices. The longer you delay sending your outstanding accounts, the longer your debtors will take to pay back your funds.
Conclusion
In conclusion, while the demands of running a business can be overwhelming, neglecting bookkeeping duties can lead to significant consequences. Maintaining accurate and up-to-date financial records is crucial for several reasons:
- It provides a clear picture of your business’s financial health, allowing you to promptly identify and address any underlying issues.
- Accurate bookkeeping helps prevent costly mistakes, such as miscalculations that could result in higher taxes or audits.
- Detailed records ensure you can claim all eligible tax deductions, maximizing your savings.
- Accurate bookkeeping is essential for managing payroll effectively and ensuring employees are compensated correctly.
- Timely reconciliation of books reduces invoicing cycles, improving cash flow by accelerating the collection of outstanding payments.
Therefore, prioritizing regular bookkeeping practices is not just a matter of convenience but a fundamental aspect of maintaining a successful and sustainable business.
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