Many small businesses choose to do their own bookkeeping for a variety of reasons, including perceived cost savings. Others hire a cheap bookkeeper or hire inexperienced staff to cut costs. The truth is, bad bookkeeping is costly; here is why:
Improper bookkeeping such as miscategorizing expenses and income or not recording payroll properly leads to inaccurate financial statements. When facing decisions about hiring employees, business development, or asset purchases, you need an accurate picture of your finances. Additionally, banks and investors will insist on accurate financial statements.
Incorrect Cash Balances
Do your financial statements reflect the accurate amount of cash you have? All accounts should be reconciled regularly so that you know what funds are available. Without proper monthly bank reconciliations, there is no way of knowing if your cash position is correct. As part of closing the books each month, the bank balance should be reconciled to the balance sheet.
Not everyone knows what to look for on a balance sheet or profit and loss statement. A trusted bookkeeper can help you analyze the data to aid in your decision-making.
Cash Flow Problems
Poor bookkeeping can lead to cash flow surprises. Unbilled (or late-billed) invoices, vendor bills that got lost and surface just when you are in the middle of a cash flow crunch, can cause havoc when you are trying to make payroll.
If you have a person in the office to handle bookkeeping, don’t give them carte blanche access to your bank account. You should be authorizing outgoing funds and purchases to ensure legitimacy. Simple steps, such as providing read-only bank access and reviewing all bank and credit card statements, minimize the risk of fraud. Alternatively, an outside bookkeeping company can provide peace of mind that work is being done correctly.
We Can Help
We specialize in bookkeeping for small businesses. Contact us at www.budgetease.biz to find out how we can provide accurate financials and bookkeeping advice so you are making informed decisions.