How to Tell If You're Doing Bad Bookkeeping

How to Tell If You're Doing Bad Bookkeeping

Though good bookkeeping services are crucial to the success of any business, many business owners fail to use common accounting principles when trying to balance the books.

It’s easy to treat accounting as a secondary concern while you’re busy with the day-to-day management of your business.

Unfortunately, this means you could be blindsided by cash flow bottlenecks, bounced checks, or angry letters from the IRS.

Here are a few of the most common signs that you need to improve your business accounting practices.

1. You're Bouncing Checks

There’s no reason your business should bounce a check, especially if you know it is healthy and thriving. Unfortunately, if you aren’t monitoring your business’s cash flow, it’s very likely that your business will bounce multiple checks.

This can affect a company’s credit score, reputation with suppliers, and even its operations. Without knowing your business’ cash flow, you won’t actually know it's true health and will be blind to any problems that may be lurking on your balance sheet.

2. You're Looking at Your Profit and Loss Statement but Ignoring the Balance Sheet

It sounds paradoxical, but it’s completely possible to run a profitable business that is in dire financial straits. However, you could miss this if you only keep an eye on profit and loss statements while neglecting to view balance sheets.

A profit and loss statement will tell you how much money your company made within a given period of time. Consequently, a balance sheet will give you a more complete overview of your company’s healthy by taking into account assets, liabilities, and if applicable, shareholder stock.

3. You Have Unreconciled Accounts

No one would pass on collecting money they have already earned, but you could do exactly this if you fail to follow good bookkeeping practices. Your accounts receivable and accounts payable should always balance out.

You could fail to collect on some of the money you are owed if you are lax in your record-keeping. You could easily face a crisis if too many accounts go uncollected, but by continuously reconciling accounts, you can keep track of all the money your business is owed.

4. You're Not Sure If You're Practicing Cash vs. Accrual Accounting

You should use a consistent accounting method to record every transaction your business makes. If you use the accrual accounting method, you will record all income and expenses once your business delivers or receives goods and services.

If you decide to use cash accounting, you will record income and expenses on the date when your business receives or spends cash. You should choose one method and use it consistently so your business can pay current and future expenses.

5. You're Getting in Trouble with the IRS

Bad bookkeeping not only prevents you from truly understanding the state of your business, but can also make you run afoul of the IRS. If you’re not keeping track of your income and expenses, you could easily lose track of taxes that your business owes.

Your business could be audited by the IRS, and you could face unexpected expenses which could saddle your business with bills it can’t afford. Even if things don’t get this bad, you could spend far too much time and money filing your taxes.

6. Similar Transactions are Treated Inconsistently

Consistency is key to successful bookkeeping, but you won’t have any if you treat regular expenses differently each month. Be sure to record your expenses consistently across each reporting period, or you could lose track of where your money is going in your company.

Inconsistent reporting could also make it harder for outsiders to find out what's going on inside your business. This could make it harder for your business to pay taxes or attract outside financing.

7. You're Not Up to Date (Or You Feel Like You're Just Winging It)

Bookkeeping takes more than simply keeping track of your receipts and daily expenses. There are many accounting principles you should obey in order to develop a clear picture of the financial health of your business.

One relatively minor error could blind you to problems that exist within your business, costing you thousands. Bookkeeping isn't something you can do well on the fly, so set aside some time dedicated just for it if you feel like you aren't taking it seriously enough.

 

Good, consistent bookkeeping can give you a clear over of your business, and can help you to easily identify areas of improvement. It can provide you with vital information that will be necessary for any meaningful long-term planning, and could be what saves your business from any number of disasters.

Rather than treating bookkeeping like an extra chore, place it front-and-center of your business duties and you could find that your business is stronger because of it.

Author: Larry L. Bertsch is the owner of Larry L. Bertsch, CPA & Associates, a top CPA and small business accountant in Las Vegas, has been offering quality accounting and tax preparation services to Southern Nevada since 2003.

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