How Inefficient Bookkeeping Can Negatively Affect Your Business

In 1494, Luca Pacioli, a mathematician, friar, and friend of Leonardo da Vinci’s, published Summa de arithmetica, which contains the first known description of double-entry bookkeeping. This system became so ingrained in how businesses operate that he is known by some as the father of modern business. Proper bookkeeping is more than just filing your receipts away in a folder. It’s an art form. It is a written history of your business, a picture painted in numbers, and the most telling biography of your corporate person. It is not something to be taken lightly.


Precious Few Hours

Imagine you’re an investor and you walk into a business to see paperwork strewn about everywhere with no discernable order to it. You ask for some facts and figures but the owner doesn’t know them off the top of their head. In fact, the owner can’t even find those figures. Unless you love to gamble, you’re probably not going to invest.


There are a lot of reasons an investor would back out of a scenario like that, but one of the most important ones is that it’s obvious the business is running inefficiently. The owner is unprepared and wasting time looking for figures that should be easily accessible. So it is when your bookkeeping is inefficient. Every minute that’s being spent looking for a particular receipt or trying to find income for a certain quarter is a minute not spent doing something more valuable. Your staff were hired to put their particular skills to work and it’s unlikely that scrounging for paperwork you can’t find was high on anyone’s CV. Efficient bookkeeping means less time wasted.


An Incomplete Picture

Bookkeeping is aptly named – books tell stories, and financial information that’s been properly organized tells the story of your business. Everything you’ve purchased, everything you’ve sold, the times you were down and out, the times you were over the moon with your success. The blood, sweat, and tears – it’s all in the numbers. 


As a business owner, you need to be able to tell your story. This story can’t just be about facts and figures, but facts and figures should definitely play into your narrative. When you tell someone about how you struggled in the first quarter because you’d just released a new product the market wasn’t ready for, they should be able to look through your bookkeeping and see figures that reflect that. When you tell them about how in the second quarter, your risky marketing campaign started to pay dividends and that product started selling like hotcakes, they’ll see it in the numbers. When you’re looking to attract new stakeholders, be they C-suite executives, investors, or high-quality employees, words and numbers tell the story.


You need to understand your own story, too – in fact, there’s probably no one who needs to know it inside and out more than you do. You’re going to make decisions about the future of your company, and in order to plot for the future, you need to understand your past. What’s worked, what hasn’t? When has your company struggled and when has it had success? Efficient bookkeeping will paint a complete picture of your company, while inefficient bookkeeping can leave holes. These holes can make it difficult to make important decisions, and worse yet, can even lead you to the wrong decisions. Don’t settle for anything less than the full picture.


Professional Help

Having read all of this, you may say “Hey, I appreciate that good bookkeeping is important, but I can keep track of my company’s story in my own head. I’ve got a great memory!”. First, let me say that the rest of us envy your ability to keep thousands of figures floating in your head without error. Second, a reminder: just because you can keep track of all of that information, doesn’t mean everyone can. What happens if you’re not around?


Let’s say you want to get insurance for your small business. You decide you want business interruption insurance so that you can still keep afloat if a natural disaster hits. You tell your insurer what your monthly income is, get the appropriate coverage and premium, and continue on with your life. Disaster strikes, you need to make a claim, and the claims adjuster asks for monthly income statements. You don’t know where they are, they’re not in order, and now you’re not sure whether or not you’ll be covered for your loss of income. Efficient bookkeeping isn’t just important for you, it’s important for other professionals interacting with your business, too


You might be unsure where you should begin with bookkeeping it is suggested that you consult with an accountant. While accountants and bookkeepers are not the same, bookkeeping is essential to proper accounting and great accounting software will make bookkeeping a breeze. Keep in mind that you should have physical copies, backups of your physical copies, digital copies, and backups of your digital copies, all properly sorted. That way, if disaster does strike, you’ll still have all your documents.


The Taxman Cometh

Save the best for last. The most obvious reason you want to be diligent about your bookkeeping is that when tax time comes, you want to be ready. Filing taxes is rarely a pleasant experience, but it’s made much easier when all of your relevant documents and figures are properly sorted. Becoming overwhelmed by debt is something that can happen to anyone. When a business is involved things are always more complicated and it can be easy to get lost in it all. 


When businesses get audited, it’s even more important that they have proper bookkeeping practices in place. Auditors will often look for physical copies of documents, and they may want a lot of information – and fast. The more quickly you’re able to provide that information, the sooner the audit will be over. You’ll want to get back to business as usual as fast as possible, so proper bookkeeping is essential. 


Inefficient bookkeeping is a tragedy. It’s a waste of time, money, resources, and most of all, potential. The power of your business lies in its story – a story supported by facts and figures. How you keep your books is a reflection of how you keep your business – keep them tidy. 

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