What Happens If You Are Not Doing Bookkeeping?
Last updated on Aug 05, 2021
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If you are not Bookkeeping? Or have not hired anyone for your Bookkeeping. What can happen if you don't maintain track of your finances?
Everyone in your circle is always emphasizing the significance of maintaining proper business financial records. These reminders are usually in the form of positive reinforcements of all things that good bookkeeping habits and practices enable you to perform as a small company owner.
But what about the disadvantages?
It's all too easy to let the tedious tasks such as accountancy and bookkeeping pile up into an overwhelming mess. What if it just continued piling up until tax time? What if you didn't maintain any records at all?
Disadvantages of Not Doing Bookkeeping
What will happen if you lose track of your books?
- You may lose money
- Tax season will be a nightmare.
- When you need proof the most, you won't have it
- Growth will be difficult
- You won't know how much to pay yourself.
We're going to indulge your dream and show you what may happen if you opted to disregard everything bookkeeping-related.
The Financials of Your Firm Are Hidden.
Your records will no longer offer a clear picture of your company's financial sustainability if you discontinue recordkeeping. It might be difficult (or virtually impossible) to track cash flow predictions and statements without proper records.
You can hide difficulties like late bills, held inventory, or recurrent variable expenses like shipping fees or hourly salaries if you don't correctly measure cash flow. You can determine your break-even point by having a comprehensive grasp of fixed and variable expenses.
Your cash flow statement indicates when money is flowing in and when payments are due. If your company is struggling financially due to a lack of cash flow tracking, a paper trail might expose the issue.
However, there is no trail without Bookkeeping, just a stack of papers on a desk someplace.
Financing Alternatives Are Becoming Very Restricted.
Do you require immediate financial assistance? If you're not using updated books, your alternatives are constrained. If you apply for a loan without thorough financial documents, you'll likely get a flat no, and a bank loan may be your only choice.
Would you want to put your money into a firm that hasn't updated its Cost of Goods Sold in six months and has no idea how much profit they've made in that time? Most likely not.
Securing financing, bringing on investors or partners, or selling your firm will be difficult without proof of your financial history.
Wave A Tearful Farewell To Your Hard-Earned Cash.
Money that should be in your pocket ends up in someone else's if you don't manage your documents. Here are some of the consequences of not keeping track of your finances.
Your Billing Cycle Has Gone Awry.
You could keep track of who owes you what in your head, but we're all human, and we all make errors. Are you confident you didn't overlook the invoice for the client who is notorious for paying late? They won't voluntarily remind you that you owe them money if you did. The longer you wait to organise unpaid invoices, the longer your company will be unable to operate.
Keeping Track Of Spending Gets Difficult.
Although having a shoebox full of receipts may appear convenient, it will not save you money. Your firm might suffer from slow leaks if you don't keep adequate records. Did you keep track of the miles you travelled to see a customer two weeks ago? Improper expenditure tracking might result in unclaimed tax deductions or an overstatement of expenses to the IRS,
Which Could Be A Problem If You're Self-Employed
A backlog is draining your time of not doing Bookkeeping and costs you way more.
Is it possible to prepare taxes if you don't have an accounting system in place?
Yes. But it's a costly waste of time. Tracking out a year's worth of records on your own takes time away from operating your business's day-to-day operations, and catch-up your piled bookkeeping may exacerbate an already stressful time of year.
If you don't have a system to keep track of your finances, your accountant will require much time to sift through the mess, which might cost you a lot of money.
Don't Take The Chance Of Playing "Catch Me If You Can" With The IRS.
Here's a heads up if you're on the IRS's radar and have not done Bookkeeping or it's not processed in place. No, a frightening IRS inspector showing up on your doorstep won't put you in jail. However, your company may face late fines and costly IRS penalties.
For the IRS, it's a red sign if your company:
- Income that has previously been reported to the IRS is not registered (on W2s or 1099s)
- Take obscenely large deductions, such as claiming 100 per cent of your vehicle usage.
- Your workers are incorrectly classified.
- W2s, 1099s, and other information returns are not issued.
An audit will be a nightmare if your books aren't up to date. Is that mound of paperwork on your desk becoming increasingly frightening? In the case of an audit, you must comply and, if required, produce appropriate verification of accounting records.
Begin Bookkeeping On Whatever Budget You Have Available.
Stay on top of your books to prevent damaging your business. Hire someone to sweat the small stuff, which is a lot of it when you think about it. So you can get back to operating your business and avoid the IRS's gaze.
You can develop your bookkeeping procedure and keep expenses down if you aren't ready to outsource just yet.
Don't know where to begin? We put up a guide on how to pick the best bookkeeping system for your company.
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