Did you know that failure to maintain proper financial records is recognized as one of the leading causes of business failure in Australia and the world at large?
Actually, running a business or a non-profit organization, like the Australian Railway Historical Society, without good financial information is never a prudent idea. While you may think that, you have so much experience that you can gauge these things in your head, at some point, you’ll get it wrong. Without proper bookkeeping, you may end up with unexpected challenges and certain costly consequences.
In that light, we explore some of the challenges you can encounter without proper bookkeeping, as well as some of the benefits of proper bookkeeping.
Why Lack of Proper Bookkeeping is Bad for Business?
Here are some of the things that can happen if you don’t care about proper bookkeeping for your business or non-profit organization:
- Tax Time Will Be Dreadful
Virtually no CPA or tax prep expert would want to work with a client who has no efficient bookkeeping system in place. While it is doable, tax prep without a year’s worth of financial records can be a time-consuming nightmare. Moreover, paying the best bookkeeper eastern suburbs can provide to track down a year’s worth of records can be an extremely costly affair, and doing it on your own is not fun as well.
For non-profits such as Australian Railway Historical Society, they’re normally exempted from tax. Nonetheless, in order to convince the taxman of this, such societies need to keep track of both their sources of income and various expenditure heads. Actually, tax exemption only applies when a non-profit uses most of its finances towards the stated cause, which has been exempted from tax by law. You can achieve this only through proper bookkeeping, which will help you prove that the expenses incurred were genuine and tax exempt.
- You May Have No Evidence When You Need it Most
If you get an inquiry from the authorities, it is normally your responsibility to produce evidence in response. For instance, how would you respond to “please resend a copy of last year’s tax returns” if you never keep proper financial records of your business? It will definitely be a nightmare.
The point is: with proper bookkeeping, you will be able to create a history for your business; a financial chronicle for every single transaction your organization has ever executed. Proper bookkeeping will be your perfect defense when authorities come calling with inquiries.
- Accuracy Will be Compromised
Without proper bookkeeping, it can be quite difficult to know the success or failure of any business dealings. In fact, your accounts are only as accurate as your Bookkeeper. A single mistake or typing error can trigger a chain reaction that will affect the entire accuracy of your paper trail.
Moreover, maintaining a proper record of your investments will help you determine which elements of your business have been worthy of your time and money, plus a track record of where your finances have been invested.
- It Can Be Difficult to Budget for Irregular Income
This largely applies to non-profits, which typically have irregular revenue and certain fixed expenses apart from the unexpected expenses. In order for a non-profit society to be able to undertake its intended projects, it must always keep track of its revenues and expenditure and be conscious of the state of its finances. In this way, the non-profit will be able to decide what it should focus on the next season. If funds are low, the organization should focus on fundraising, whereas at other times it can focus on delivering the services for which it was started. All these can be made possible by having a proper bookkeeping system.
- Growth Will Be Difficult
Without good financial records, things can be quite difficult when the time to expand your business, open a new location, or build out a team, comes. Consider these questions:
- Would you advance a loan to somebody with no proof of responsible financial practices?
- Would you work for an organization that doesn’t care about reimbursing expenses?
- Can you rent a business space for a tenant that cannot produce profit and loss statements for the last couple of years?
If you answered ‘NO’ to all of these questions, then you understand how difficult it can be to grow a business without a financial history. Proper bookkeeping ensures that your business has a solid financial history.
All these factors are a recipe for business failure, and therefore it is imperative that you adopt the practice of proper bookkeeping, which comes with loads of benefits.
What are The Benefits of Proper Bookkeeping?
With proper bookkeeping, you can keep track of all information you need for mandatory obligations, such as audits and taxes. Having everything from small to big invoices properly documented and stored eases the retrieval process, making your business or organization legally compliant for any issues that might arise.
The onus is on every business owner to report their organization’s financial status to any investors. As such, it is imperative that you understand the numbers behind the results, and this will also be beneficial for the future planning of your business.
- Financial Analysis
With a good bookkeeping system, you will be able to manage your cash flow and improve your business structure. These are among the most crucial elements of a successful business.
- Business performance
With good bookkeeping, it is easy to evaluate the performance of your business or non-profit organization. Namely, it will help you determine whether you are growing, depleting, or breaking even, plus the rate at which this is happening.
A successful organization depends not only on stable cash flow but also on proper bookkeeping. Without up-to-date records, it is virtually impossible to determine the financial status of your business. Therefore, every business owner has to recognize the importance of sound bookkeeping practices, and if not familiar with bookkeeping requirements, it is advisable to seek professional guidance. Just make sure you get the best bookkeeper eastern suburbs can provide, and your business will be on its way to success.