Failure to keep accurate financial records is a costly mistake that could have a negative effect on your business.
Understanding your company’s financial position and performance helps you in making better business decisions and allows you to take advantage of an opportunity when it presents itself. Often, accounting and record keeping seems like either a waste of time or an overwhelming task to an entrepreneur. As a result, you put it on the “I can do it later” shelf and it sits there for weeks, months, or even years. This can be one of the biggest mistakes you make as a new entrepreneur.
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There are various options for keeping your records up to date. Depending on the size and operational structure of your business, you may need to hire a full-time accountant in-house, hire a part-time bookkeeper, or outsource your full accounting needs. But no matter what, at some point, you will be forced to get your accounting records up to date, whether it be to complete a tax return, comply with a state audit, or to take advantage of some funding opportunities. It can be extremely costly to get your records organized and up to date if you are months or even years behind.
Here are 3 reasons why failure to keep accurate financial records is a costly mistake for entrepreneurs.
You could make bad investment decisions
If you have multiple product or service lines, but do not keep track of the performance of each, you may continue to invest in one thinking it is your star performer, only to find that your profit margin is half of that of another product or service.
You may have trouble finding a source for funding
Should you require additional financing, a bank or venture capitalist is going to request copies of various accounting records, including accurate profit and loss statements, balance sheets, and tax returns. If you are in a pinch for cash flow and cannot provide the required documentation, you may not have a source for funding.
You could miss out on a golden opportunity
If you find you have a potential buyer interested in your company, they will want to understand the company performance. If you cannot provide them with answers to their questions about your company’s financial situation and detailed records to back it up in a timely fashion, you may lose out on a golden opportunity.
Accounting and bookkeeping is extremely important to the success of your business for multiple reasons. It keeps you aware of your business performance, keeps you in compliance with your reporting requirements, and allows you to be prepared for that once in a lifetime opportunity that arises. The cost of doing business begins long before you open your doors to clients and begin collecting payments. It’s important that you have your financial management processes up and running from day one. The costs of keeping accurate records can be extremely reasonable if you get started right and immediately. The longer you wait, the more costly it can be.