What Happens When Your Business Has No Bookkeeping Process
Bookkeeping is a necessity for any business or organization. It is said to be the financial backbone of a company, allowing all financial systems and structures to flow and work.
Imagine a company without a solid bookkeeping process or one without bookkeeping entirely. Financial transactions are not recorded, receipts are not kept, expenses are not tracked, and financial flow is not streamlined at all. What will happen to the financial flow of the business or organization? There will be no transparency and no proper accounting, not to mention that more disputes will arise.
Why is this so? What does bookkeeping entail?
In a nutshell, bookkeeping is the recording of financial transactions. It specifically refers to the recording of financial transactions and any information pertaining to the business operation on a day-to-day basis. It involves not only the recording of data but also the storing and retrieving of financial transactions and information. Business transactions include purchases, sales, receipts, and payments, among other things.
Do you see the scope of what bookkeeping entails? Without it, there would be financial chaos in any given business or organization. In this section, we will further discuss the effects of having no bookkeeping:
Without bookkeeping, your financing options will be limited. Let’s say that you need to obtain some sort of loan from the bank. Financial institutions require evidence of financial transactions and proof of a steady financial history. Without these financial records, your loan will not get approved. Securing loans, making investments with affiliated partners and other businesses, and even selling your business will not come to fruition at all.
The invoicing cycle can be complex. It deals with both dates and numbers. The amount of cutoff dates, timeframes, numbers, and billing cycles can be rather overwhelming. It’s almost impossible for you to keep track of all these things mentally. The sheer volume necessitates an organized recording. Otherwise, your clients will not be billed correctly. Chances are you will be short of what you are supposed to receive, or your customers might end up complaining due to being overcharged.
A payroll requires a well maintained system of checks and balances. Without bookkeeping, issues with payroll may arise and the receiving end will be the poor employees - the lifeblood of your company.
Bookkeeping ensures payroll records — e.g. working hours, productivity minus tardiness and absences, overtime rendered, and leave benefits as well as added incentives and compensation — are up-to-date. Without proper records, you might either be underpaying or overpaying your employees. Either way, it will be a lose-lose situation for both parties.
Management of Expenses
Management of expenses will be a lot harder without bookkeeping.
The cash flow going in and out will not be systematic and organized. You might be putting too many restrictions on spending since you aren’t sure of the business finances, and that will compromise business operations and even sacrifice its needs.
Conversely, you might be spending too much wherein your company’s expenses might be higher than the return of investment. In this case, the company will not be earning at all, hence leading to business retrenchment or even closure.
Transparent bookkeeping of all financial transactions going in and out will help you manage your finances. You will be spending correctly and earning more.
In the end, while there are so many factors why a business fails or thrives, bookkeeping is a crucial factor to determine overall business success.