It’s easy to let the boring stuff (like bookkeeping and record keeping) pile up into an intimidating mess. What if it kept stacking up until tax season? What if you didn’t do any bookkeeping at all?
We’re going to indulge your fantasy and walk you through what happens if you chose to stop using accounting.
Spoiler: It won’t land you in jail, but it may leave you with a hefty price tag.
Your company’s finances are left obscured
If you put a full stop to bookkeeping, your books will no longer show a clear picture of your company’s financial viability. Without accurate records, it can be difficult (or nearly impossible) to track cash flow projections and statements.
Without accurately measuring cash flow, you can obscure issues like overdue invoices, held inventory, or recurring variable expenses like shipping costs or hourly wages. A clear understanding of fixed and variable costs allows you to find out your break-even point.
Your cash flow shows when money is coming in and what bills need to be paid. If your business is failing to track cash flow, and you’re struggling financially, having a paper trail can reveal the problem. But, without bookkeeping, there is no trail—just a stack of papers on a desk somewhere.
Financing options become limited
Need access to money fast? Your options are limited if you don’t have up-to-date books. If you ask the bank for a loan without detailed financial records, the answer will be a resounding no, and a cash advance might be your only option.
Would you want to invest in a company that hasn’t updated their Cost of Goods Sold in six months, and is blind to their inventory, and how much profit they’ve earned during that time? Probably not.
Without evidence of your financial history, securing loans, bringing on investors or partners, or selling your business will be an uphill grind.
Wave a sad goodbye to your hard-earned money
If you don’t organise your paperwork at all, money that should be in your pocket ends up in someone else’s. Here are some of the bottom line detriments of not doing your books.
Your invoicing cycle goes astray
You could keep a mental note of who owes you what, but we’re all human—we all make mistakes. Are you sure you didn’t forget about the invoice for the client who always pays late? If you did, they’re not going to voluntarily remind you that they owe you money. The slower you are at organising outstanding invoices, the longer your business will go without those funds.
Payroll problems start to rise
If a system of checks and balances isn’t in place, issues with payroll can happen. Payroll records need to be up-to-date with staff paid on time—tracking benefits, leave time, expenses, and more, can be complicated if left unorganised.
Without proper bookkeeping, you might be under-compensating (or overpaying) employees without knowing. Any errors on year-to-date earnings will be reflected in the employee’s W-2 form from your records and could cause tax problems for both of you.
Managing expenses becomes tricky
Having a shoebox of receipts might sound easy enough, but this is not going to save you money. Without proper bookkeeping, your business could suffer from slow leaks. Did you track those miles you drove two weeks ago to visit a client? Improper logging of expenses could lead to unclaimed tax deductions or an overstatement of expenses to the ATO—which is an issue if you’re audited.
Bookkeeping backlog drains your time (and costs you way more)
If you have no bookkeeping system in place, is tax prep doable? Yes. But it’s an expensive time suck. Tracking down a year’s worth of records on your own takes you away from running the day-to-day operations of your business. Catch up bookkeeping can make a stressful time of the year even worse.
If there isn’t a system in place for monitoring your books, your accountant is going to need ample time to sort through the mess, charging you an hourly fee that might cost a fortune.
