At some point, every business owner starts doubting their bookkeeping skills and starts wondering about the hidden cost of messy books. I mean, is it really such a big deal? Won’t the CPA who does your taxes fix everything anyway? I’m paying the bills, so what does it matter if the books aren’t up to someone else’s standards?
Yes, it’s your business, and it’s nobody else’s business what you do with your books (pun intended). Right?
Right?
(Insert cricket noises here).
The truth is, having your books in a constant state of chaos is hurting you in ways you might not realize. The obvious cost is the extra amount that you have to pay at tax time. Many tax preparers and CPA’s don’t do monthly bookkeeping tasks. They are concerned with taxes and advisory activities. They might be completely willing to talk to you about financial planning, but a lot of them don’t actually do your books.
Your books have to be in order for them to be able to prepare an accurate return. If you take your messy books to have your taxes prepared, they may tell you to take your books to a bookkeeping for a cleanup (insert cash register noises), or if they do cleanups themselves, they are going to charge you for it. They may charge you quite a bit because it slows them down. They make their money preparing taxes. If they are having to wade through your messed up books, it takes away potentially weeks of their time that they could be working on other tax returns. They are going to pass that cost onto you.
That’s not a hidden cost.
So, then, what are the hidden costs?
The costs that you don’t see are much more wide-reaching. If your books are a mess, then you have no way of comparing the important numbers from month to month – things like net profit, but also things like accounts receivable and accounts payable, Cost of Goods sold, etc. Maybe you sold a lot of products, but you haven’t been paid for those yet. Maybe you brought in a bunch of money, but you still have outstanding bills that need to be paid. Maybe you have customers who haven’t paid you in several months.
If your book s are a mess, you can’t see those things easily.
Another hidden cost shows up in missed opportunities. Maybe a property becomes available that would be absolutely perfect for your business. Before they lend you money, most banks want a clear picture of what your business is doing and how profitable it is. They need to know if you have the ability to continue paying on a loan on a long-term basis, and they can’t see that if your books are messy.
Even simple things like figuring out why you seem to be paying more for materials these days, gets a lot harder to do if your books are messy. If your books are organized, you can click right in and compare costs from month to month.
Another hidden costs of your books being messy is that when your company’s finances are not in order, you don’t have the information you need to make decisions. Your business needs a new piece of equipment, let’s say, and you think maybe you can afford it. Maybe you can afford it, but maybe your bank account only looks like you can afford it because the bills haven’t been paid yet. It’s kind of a guessing game.
If your books are in order, you can pull up your Profit and Loss Statement and your Balance Sheet. You have the answers right at your fingertips and the information you need to make decisions based on what’s actually going on with your business over all and not just what’s in the bank right now. Having your books in order gives you the power of information.
What if you are ready to retire and decide to sell your business? If your books are messy, you might end up just taking what you can get. If your books are well-kept and up to date, you know exactly what you have and you can show projections of what the potential buyer can expect to earn in the future. It could mean retiring comfortably as opposed to hoping for the best on Social Security.
There are a lot of hidden costs of messy books. I have only just scratched the tip of the iceberg here, but you get the idea. Having your business books in order is important. In an economy that feels quite unpredictable regardless of the political party in power, it is even more important to stay on top of your books.
How healthy are your books? Are there areas where you feel you could do better? Set up a free consultation today, and let’s get your books working for you instead of fighting you every month.
