As your business expands, you inevitably have more problems to deal with. One of the most challenging issues is when there are loopholes in your cash flow and financial statements. The reasons why they happen are plenty, but the effects they create are not appealing in any case.
Errors in your bookkeeping and accounting practices can make your thriving organization sink real quickly. In fact, many of you have been a victim of accounting abuse already at some point. If so, then you realize how slight discrepancies can impact big management decisions.
Your managers, creditors, and investors rely on your accountants for the market status and condition of the business and suffer greatly if there are any flaws. From the loss of profits to a tarnished reputation and complete shut-down of operations, the way your investment can suffer is indeed unimaginable.
So, just as you once evaluated the benefits of proper accounting, you must now pay attention to what your bad accounting habits can bring. You should understand the substantial threats these can pose to you and your company’s livelihood. But, first, know which ones are those harmful practices.
- Not monitoring your expenses
- Not separating personal and professional funds
- Not paying attention to bookkeeping
- Not saving receipts and notes
- Not reconciling your accounts
- Not budgeting appropriately
- Not holding on to financial documents for 5-7 years
Now, let us discuss what the mistakes mentioned above do to your business.
- You Do Not Know Where Your Business Stands
To understand the progress of your business, you have to calculate the numbers. Without them, you don’t know what drives the operations efficiently, how much every employee costs, where the revenue is sourced from, or how well you are doing financially – basically, you don’t know where each of your efforts is going. It is only when you get a clear understanding of the financials with sound bookkeeping and accounting practice that you can optimally run your backend office.
- You Are Prone to Theft, Embezzlement, and Fraud
An unorganized accounting office with ambiguous policies and processes can expose your company to more instances of fraud and embezzlement. It is primarily employees and managers responsible for these acts. And surprisingly, they can go undetected for years and come to light only after thorough auditing and monitoring. Sudden fall in profit, missing files, manipulated cheques, stranger vendors, and duplicate payments are a few indications of a severe offense happening internally.
- You Face Credit Issues
Poor accounting can have huge effects on how you manage your business. The payments for debts and other bills may get late, leading to higher interest rates and penalties. This can further interfere with your credit score and reports and bring down your creditworthiness in the market. Hopefully, now you would understand why bookkeepers or bookkeeping software are crucial for your business – not missing out on your transactions or reporting.
- Your Staffs Abuse Their Powers
The abuse of power happens when managers and employees try to bypass their scope of role and power designated to them by the company. A simple example of this scenario is an employee offering extra discounts on your services or products to a friend or vendor and then manipulating the records to show nothing happened. If you don’t reconcile your accounts often, you wouldn’t ever get to know about it.
- You Affect Stakeholders and Investors
Accurate accounting habits are essential for every company to succeed. Without them, your financial reports can suffer, and your potential investors and stakeholders hesitate to invest in your business. Third-party investment is the lifeblood of big companies, and if it is so in your case, you want to present trustworthy and promising financial statements to them. But that is not possible if your accounting practices are not sound.
- You Harm Sales and Profits
You should already see this coming if there is a flaw in your accounting or bookkeeping system. When your financial management is not stable enough, you lose access to suitable suppliers and vendors. Gradually, you can see a decline in sales and also many clients and customers turning away. You cannot determine how simple financial numbers could turn the tables for your brand.