Accounting Basics

What Happens if You Don’t Do Your Accounting?

By April 23, 2015 February 26th, 2019 No Comments

Everyone around you (including a certain online accounting software provider) continually stress the importance of keeping accurate business finance records. These reminders typically come in the form of positive reinforcements—all the things great bookkeeping habits and practices allow you, a small business owner, to do. But what about the downside? What can happen if you don’t care about accounting? 

You Can Lose Money

Actually, this is incorrect. Without accounting your business will lose money. If you’re a sole member business, you do everything—including invoicing. And when business is good, remembering all of the instances in which you’re supposed to get paid can get real hard, real fast. Impossible, you say? It’s not. We promise. And it’s not as if your clients or customers are going to voluntarily come to you asking, “Hey! Do I owe you any money?!?!”

In additional to big chunk loses like those, not having accounting for your small business can lead to slow leaks. Tracking those measly 15 miles you travel once a week to visit a client surely won’t impact whether or not your business makes it, right? Wrong. And in fact, whether or not that expense impacts your business’ ultimate success is the wrong question. Fifteen weekly miles winds up being 780 miles a year. In the U.S., that winds up being a $448.50 cost (aka, tax deduction!) for the year. (Learn more about mile tracking.) But without accounting software to track and manage that expense—and all expenses—it’s unlikely you’ll maximize that $448.50.



Tax Time Will Be a Nightmare

How many CPAs or tax prep pros do you think would be happy to have a client who has no accounting or bookkeeping system in place? Zero. Tax prep without a year’s worth of records is a nightmare. Is it doable? Yes. But, man, will it be time consuming. Either you’re tracking down a year’s worth of records on your own (have fun with that) or you’re paying a bookkeeper to do the work. (Side note: most bookkeepers don’t work for free.)

You’ll Have No Proof When You Need it Most

Should you get an inquiry from a local, state or federal revenue agency, the onus is generally on you to provide evidence in response. What sort of inquiries are we talking about here? It really runs the gamut: everything from a simple “please resend a copy of last year’s tax returns” to a full-on audit. But the point is this: accounting software creates a history for your business. It’s a financial chronicle of every transaction your business has ever executed. Accurate records are going to be your best defense when inquiring parties come calling.

Growth Will Be Hard

If you’re business gets to the stage where it’s time to expand, open a new location or build out a team, a lack of financial records will make things difficult. Would you give a loan to someone with no evidence of responsible financial practices? Would you work for a company that is lax about reimbursing expenses? Would you rent space to a tenant that can’t provide profit and loss statements for the last few years? The answer to all of these questions is emphatically no. Without a financial history, growing your small business will be hard.

You Won’t Know What to Pay Yourself

At the end of the day, you’re in business for yourself to make a living. If you don’t have an accounting system in place, you simply cannot accurately know what to pay yourself. Can you guess based on what’s in the bank? Sure. But that’s risky for obvious reasons. (Hint: the less you have to guess at anything in business, the more successful you will be.) Regardless of how you put money in your own pocket (i.e., owner’s draws, payroll, etc.), accounting is the engine that powers sound decision-making. 

So… are we in agreement that accounting—and accounting software—is a must-have for all small business owners?