I came accross the following article written by Jerry Airsman, a St. Louis, MO based CPA, CFO and Small Business Specialist. I think Jerry makes some very valid points and a convincing case to improve financial record keeping. Well done, Jerry!
The High Cost of Bad Bookkeeping!
Recently, I was reminded of the High Cost of Bad Bookkeeping. Remember the old saying “advertising” doesn’t cost it pays! Well the same can be said of accounting/bookkeeping–perhaps even more so!
1) A gentleman came to me because his lender refused a loan to him, citing that his financials were not accurate and very out of date.
2) It reminded me of the time a group of small business investors refused to buyout a gentleman’s business because he had not stayed up to date on his accounting/bookkeeping. So they could not trust his financials!
3) There was the time a gentleman was drug into court by several of his vendors because he lost control of his accounts payable.
4) Then the gentleman that was forced into bankruptcy when he lost a large customer when he lost control of his accounts receivable.
5) Of course, there was the small business that went out of business when the owner lost control of his payroll taxes through neglect. This could have easily been corrected in several ways. By the way, the most common mistake here is using one’s payroll tax withholding for other things in a pinch.
6) We discovered the one small business that was neglectfully paying many hundreds of dollars via bounced check charges at his bank. This could have easily been stopped by just religiously doing the monthly bank reconciliation. Religiously doing those monthly bank & credit card reconciliations can solve so many problems.
We could go on with example after example and I wish these were unusual examples but no it happens all the time. Most small businesses fail simply because the owners neglect accounting/bookkeeping and/or they see it as something to simply be “farmed out” to someone else and forgotten about.
As with many things in our lives, most of us simply do not have the self discipline to stay on top of the accounting/bookkeeping. Often we don’t stay on top of something because we don’t truly and fully understand it so we fall behind out of fear and wait until the last minute when we are forced into it. Then we are in trouble and try to catch up in a hurry and make mistakes or skip things.
We have to see that small business accounting/bookkeeping is by definition “management”.