When you first started your company it is likely that you had your hands on every aspect of the business. You were the sales person, human resources director, customer service representative, and the bookkeeper. As your company continues to grow, it is not possible for you to continue on in all of those roles. There is simply not enough time in the day. It may be tempting to avoid hiring help as long as possible, but that could ultimately damage your business. In the case of doing your own bookkeeping, you are taking some big risks that can have a major impact on the success of your company.
1. Missing a problem
When you handle your business’ bookkeeping yourself, you take the risk of missing a problem that costs you money. There are two main reason you could miss information, inaccurate record keeping and misunderstanding of financial statements. It can be easy to let accounting details fall through the cracks because there are so many other areas of your business that demand your attention.
There are several financial reports that can help you spot a problem area in the finances of your business. For example, you can look at a profit and loss statement to help you decide which areas of your business are working and which ones are not. There may be an area of your business that consistently loses money. Accurate accounting will allow you to identify the problem area quickly so you can make necessary changes.
Financial statements can also help you keep up with money that is owed to your company. For example, if you sell supplies to restaurants, you can look at your balance sheet and see who owes you money for products you have already provided. If there is a customer who consistently pays late, or not at all, you can catch that in your financial statements and address the problem.
2. Missing an opportunity
When you do your own bookkeeping you also risk missing an opportunity. The financial statements for your business can help you identify the areas that are profitable. Once you determine what is working, you can put more resources into that area to further increase profitability.
If you do not have accurate accounting records, it may impact your ability to get more money for your business. Any bank or possible investors will ask for your financial statements before they consider loaning or investing money into your company. You risk missing out on that money if you do not have your bookkeeping information complete and up to date.
Accurate bookkeeping is essential for tax purposes. You risk missing out on legitimate tax deductions if you are not diligent with your record keeping. For example, if you get behind on keeping up with your expenses, there may be some that get lost or forgotten. This could result in you paying more in taxes that you actually owe!
When you do your own bookkeeping you also risk leaving out important information that needs to be used at tax time. For example, if you rent out an extra office space in your building, that is a secondary income that must be reported. If you did not keep accurate records or forgot to consider the rental income in your financial statements, then you will have to go back and try to find all of the pertinent information for your tax person. A lack of knowledge or diligence in your record keeping can result in complications at tax time and the possibility of penalties and interest on unpaid taxes.
A bookkeeping professional can help reduce the risk of missed problems, missed opportunities, and tax mistakes. In addition, bookkeeping help will free up some of your mind and time to focus on growing your business.