When a business doesn't perform bookkeeping, it is operating without having a true picture of its financial health. It is vitally important that a business has a bookkeeping/accounting program as part of its operations because it needs to know what money is coming into the business daily, weekly, and monthly, and what money is going out as well. It has to have a handle on its current cash position.
In addition, without a bookkeeping system,...
When a business doesn't perform bookkeeping, it is operating without having a true picture of its financial health. It is vitally important that a business has a bookkeeping/accounting program as part of its operations because it needs to know what money is coming into the business daily, weekly, and monthly, and what money is going out as well. It has to have a handle on its current cash position.
In addition, without a bookkeeping system, a business would not be able to accurately keep track of the taxes it owes the government - payroll taxes and otherwise. This could get it into trouble with the government in the form of fines and even imprisonment if the government deemed this withholding of the right amount of tax incessant and intentional.
Furthermore, without a bookkeeping system, a business would not know if it could afford (for example in the case of a retail store) to buy more inventory without going into debt. This is where knowing your cash flow situation, and cash on hand is important.
Accurate sales records (the accurate recording of revenue), accurate banking records, and accurate records of payments to suppliers lets a business know how much cash is on hand to fund new purchases. If a business just haphazardly makes purchase without knowing its true financial position, and then finds it doesn’t have ready cash on hand, it may find that it has to borrow to pay for its purchases.
As a result, it then may incur interest costs - more expense – due to having to borrow money. If it had a bookkeeping system, its records would have showed them that they could not buy more inventory right away or not as much as they wanted to. This would have saved them from borrowing money and also possible having too much inventory sitting for prolonged periods in their back room not earning them any money.
Moreover, not having a bookkeeping system in place, makes it difficult for a business to present suitable documentation to creditors or venture capitalists who require accurate records from a business before advancing loans to them. A business may be doing very well in its sector and wishes to expand. It may require a loan to do so. It probably will not get the loan because it doesn’t have bookkeeping records to show lenders, which show proof of its performance.
Additionally, the government may offer grants to help businesses prosper. They would want to see financial records from a company before they issued the grant. A business is unlikely to receive the grant if they cannot show an accurate picture of their financial state or health. A grant probably won’t be advanced to this company because lack of a bookkeeping/accounting system shows they are unprofessional and not astute in their business operations because accurate record-keeping is vital to a company’s success.
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