Unfortunately in the world of startups and SMBs, efficient and proper accounting systems and processes are often seen as a nice-to-have rather than a must-have. While we all know that the ideal company infrastructure would include a robust back office, resources often end up focused on the areas that generate revenue. Except there is one problem in this logic—often areas that make not seem to be direct revenue generators can still have a tremendous impact on your bottom line.
In practice, a business that doesn't use reliable accounting services or procedures can experience some real pain, often in the form of missed income and needless losses. Here are some problems commonly experienced by SMBs who try to operate without the proper bookkeeping services in place.
1. Delayed accounts payable
AP need to be managed carefully in order for a business to be successful. Reputations may be damaged if your company fails to pay invoices on time, but the real danger lies in incurring late payment fees, decreased credit worthiness, losing preferred rates or losing a supplier completely. The more complex the accounts payable, the more important it is that it be managed in an structured manner, paying close attention to reconciliations and integrating the data within the P&L.
2. Delayed accounts receivable
A company's accounting structure not only governs the outgoing expenses. It's also a vital part in ensuring that money keeps flowing into the company. Careful, methodical oversight of cash flow and aging reports is absolutely vital to ensure a viable business. Non-paying clients, slow paying customers and overlooked invoices can put a company out of business over night.
3. Lack of management information
Effective bookkeeping provides business owners with the clearest possible picture of how they are performing, what needs to be improved, and how the future is shaping up. All business plans and KPIs are ultimately measured against the balance sheet, so without an absolutely precise picture of current financial performance, any planning is unlikely to be helpful and more likely to cause problems.
Trust is a great thing to have among your employees—until you suddenly don't have it. A 2016 study estimates that businesses lacking internal fraud controls as simple as proactive data monitoring experienced fraud twice as much as counterparts that did activel review their financial data. Financial statement fraud was by far the largest contributor to fraud in general. The best way to protect against this type of loss is to ensure consistency, transparency and regular oversight in the accounting department.
5. Planning for taxes
For new businesses that fail, one of the most common causes of death is an inability to meet their tax demands. In theory, proper tax management shouldn't be a problem, yet tax liabilities sometimes prove fatal. The root cause is almost always bad planning and organization in the finance team. Successful businesses have a finance team that plans for the future and considers tax implications as part of a regular routine, including using professional vendors for many tax needs such as payroll tax payments and quarterly filings.