What Takes Place If You Don’t Do Bookkeeping?
It’s simple to allow the tedious tasks (like accountancy and bookkeeping) to swell into a confusing jumble. What if it continued to accumulate until tax time? What would happen if you didn’t keep any books at all?
We’ll indulge your fantasies and take you through what may transpire if you decided to disregard anything related to accounting.
The Finances of Your Business Are Not Made Clear
Your books won’t accurately depict your company’s financial soundness if you completely quit keeping books. Tracking cash flow estimates and statements can be challenging (or nearly impossible) without precise records.
You can hide problems like past-due invoices, retained inventory, or regular variable expenses like shipping fees or hourly pay if you don’t effectively measure cash flow. You can determine your break-even point by having a thorough understanding of fixed and variable costs.
If your company is struggling financially and is having trouble tracking cash flow, having a paper trail can help identify the issue. However, without bookkeeping, all that is left is a desk full of paperwork.
There Are Fewer Financing Options
Need quick access to funds? If you don’t have recent novels, you have few options. Without thorough financial documents, you won’t be approved for a loan by the bank, and a cash advance may be your only choice.
Would you want to put money into a business that hasn’t updated its cost of goods sold in six months and is unaware of its inventory and profit margins throughout that same period? Most likely not.
Without proof of your financial history, getting loans, recruiting partners or investors, or selling your company will be difficult.
Say a Tearful Farewell to Your Hard-Earned Cash
Without any organization, money that belongs in your pocket finds up in someone else’s. Here are a few negative effects of not keeping your books.
Payroll Issues Start to Get Worse
Problems might occur if a system of checks and balances isn’t in place. If not kept organized, keeping track of benefits, leave time, expenses, and other items can become challenging.
Without good bookkeeping, you can be paying staff too much (or too little) without even realizing it. Any discrepancies in the employee’s year-to-date wages will appear on their W-2 form based on your data, which could result in tax issues for both of you.
Cost Management Becomes Challenging
It may seem simple enough to keep all of your receipts in a shoebox, but doing so won’t help you save money. Without accurate bookkeeping, your company can experience slow leaks. Did you keep track of the miles you traveled to see a client two weeks ago? A problem, if you’re audited, would be improper expense logging, which could result in unclaimed tax deductions or an overstatement of expenses to the IRS.
Backlog in Bookkeeping Consumes Your Time
Is tax preparation possible if you don’t have a bookkeeping system in place? Yes. But it costs money and wastes time. Finding a year’s worth of records on your own takes time away from managing your company’s daily operations, and doing catch-up bookkeeping may make a difficult time of the year even worse.
If you don’t have a system in place for keeping track of your accounts, your accountant will take a lot of time to figure everything out and will likely charge you an outrageous hourly rate.
Avoid Putting Yourself in Danger by Trying to Catch the IRS Out
Here’s a warning if you’re a target of the IRS and don’t use any bookkeeping procedures. No, a frightful IRS inspector knocking on your door won’t put you in jail. However, your company can get costly IRS penalties and late fees.
The IRS will take notice if your company:
- Does not disclose income that has already been reported to the IRS (on W2s or 1099s)
- Takes eerily large deductions, such as claiming 100% of personal car use
- Classifying your staff incorrectly
An audit will be a nightmare without current books. Do the papers in the stack on your desk seem to be getting scarier by the second? In the event of an audit, you must abide by the rules and, if necessary, offer sufficient documentation of your accounting records.
Begin Bookkeeping With Any Resources You Have
Keep an eye on your books to prevent damaging your company. Hire someone to worry about the minute details—which, when you add it all up, are very significant—so you can focus on running your business and avoid the IRS’s scrutiny.
If you’re not quite ready to outsource, you can start using your bookkeeping procedure and save money. Uncertain about where to begin? We created a guide to help you pick the best bookkeeping option for your company.