Many small businesses are operating without up to date accounting record, or timely periodical reporting. Business owners are sometimes undecided as to whether they should outsource or prepare accounts in-house. This is sometimes caused by cash shortage, or just a careless approach to business by the owners. Below we examine some disadvantages of delaying the accounting and Bookkeeping functions.
A businessman who operates without accounting data will not know how the business is performing. There might be some cash in the bank, but this is not the same as profit. He needs to know in a timely manner, how his business is doing. He needs to compare accurately documented revenue with matching expenditure to see if he is making a profit.
When there is a lack of accounting data, the presence of pilferage or fraud may not be detected before much is lost. The guilty employee might have departed before the discovery is made, so that any chance of recovery is lost. Often in a small business, there may only be the owner and a bookkeeper. The bookkeeper, who may be having personal financial difficulties, takes a small amount of money intending to pay it back. No one notice, so more is taken. Over a period of time, it starts to mount up to a lot of money.
Timely preparation of accounts, examined by the can help to prevent this temptation
Correct information is needed at intervals to calculate sales, use and other tax, and to meet other statutory obligations. Proprietors will be penalized for late payment of taxes, for errors in tax computation or the absence of payment.
Where there are partners, or more than one persons running and benefiting from the business, the lack of accounting information will make it impossible to determine each partner's share of profits or loss, leading to mistrust among partners.
The longer the delay in preparing accounts, the more difficult it will be to investigate and remedy past issues that affect the accounting. The details of what really happened 6 months or 1 year ago is not always easily recalled.
All operations should have some system of internal control and procedure to minimize fraud and errors. The timely preparation of accounts will aid the compliance with internal rules and regulation.
Some business managers prefer to do the books themselves, but in many instances they don't have the time or expertise to do accounting and take care of operations.
There are likely to be errors because business owners are usually not good at accounting, and errors in the reports can cause inappropriate actions to be taken that will have adverse effects on the operation.
At other times business owners try to reduce expenses by not employing someone to do the bookkeeping, or outsourcing the function, but in the long run this decision
can be more costly than the cost of getting the books done.
In summary , timely accounting and bookkeeping is essential to every business. It provides a feed back to the owner on the results of operation for a period. It then becomes the owners responsibility to take remedial action where necessary, to correct any adverse discoveries.
Selvyn Evans is an Accounting/Financial Professional with 30 years experience in the Accounting and finance field. He publishes business topics and assist small businesses in their bookkeeping and accounting needs.
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