For most small businesses, bookkeeping is an acquired skill and, likely, a necessary irritation for allowing your company to thrive. Even if you hate math, ignoring your bookkeeping can spell the failure of your business and, in the worst case, make you liable for lawsuits and audits. Here are some clues that you need to put more focus on your books.
1. You Feel Cash Crunch After Cash Crunch
Probably the most immediately destructive result of not keeping on top of your business’s accounting is being rocked by consecutive cash crunches. These occur when your cash flows are badly out of sync—when you have bills to pay but your income has disappeared. Obviously, if you cannot pay your employees or vendors, this shortfall can cause huge trust issues. Cash flow problems over even a short amount of time could easily shutter your business. If you find yourself in this situation, get your books in order and determine your business plan to see how to best weather the storm.
2. Lots of Clients but Bank Account Is Empty
If you find your company in the frustrating position of working a lot but still being broke, a devastating cash crunch could be just around the corner. This situation means your revenue streams are not well coordinated with your cash outflows. You need to figure out how to receive cash ahead of having to cover your company’s expenses. Accounting software can help you plan your way out of this predicament because you can schedule your billing and invoices cycles to better suit your business.
3. Receipts Are Disorganized
If your desk, drawers, car, and jacket pockets are full of receipts, you need a better bookkeeping system. Proper maintenance of your receipts is necessary for both your company’s accounting and for the Internal Revenue Service. Some accounting software allows you to easily snap photos of each relevant receipt so there is a digital record. Either way, you should be keeping your receipts in a single location and adding them up regularly.
4. You Forgot Your Bank’s Log-In Information
If you find yourself digging around your notes for bank account passwords, it could indicate that you have too many bank and financial accounts associated with your business. If this situation is too complicated, it can lead to bookkeeping errors that might trigger an audit. As you aim to declutter your books, look at linking all of your bank accounts together—or at least rig a system that makes them easy to monitor.
5. You Forget to Invoice
For most businesses, invoicing is essential to getting paid. After you do whatever work your business does, money doesn’t magically spring up in your account—you have to invoice your clients and customers, and you have to invoice promptly. Better bookkeeping practices will help you stay on top of who owes you what and when. Staying on top of sending out invoices is one of the best ways to avoid a cash crunch in the future.
6. You Have a Mountain of Unpaid Invoices
You may run into a situation of sending out invoices on time and hearing nothing in return. Unpaid invoices are a very common annoyance for small businesses, especially freelancers. It can easily turn into an infuriating and costly disaster if it goes on too long. Don’t be afraid to advocate for yourself—they owe you money, after all. Keeping your books in order will help you better understand who owes you money and how long they have been delinquent. This knowledge will all factor into helping you decide how to best collect your money.
7. You Never Cross ‘Bookkeeping’ Off Your To-Do List
If you find that by the end of every workday you never quite get around to balancing your books, you probably have a bookkeeping issue. Even if it is a less exciting part of being your own boss, it is critical for your business to succeed and grow. Many small business owners opt to outsource or automate their bookkeeping by either hiring an accounting service or becoming well-versed in easy-to-use bookkeeping software.
8. Tax Time Is a Nightmare
If you dread April 15 more than any other day of the year, there’s a problem. Tax time should not be a mad dash of collecting receipts and doing a year’s worth of math followed by months of hoping you don’t get audited. If you keep your books current, even on a monthly or quarterly basis depending on the size of your operation, dealing with the IRS will not be painful. If your books are well-maintained, the chances of being singled out by the IRS decrease significantly. Even if you are audited, good bookkeeping will make the process as straightforward as possible.