o If you ever need a loan, any financial statements you give to the bank or lender will likely be inaccurate. This means they may give you a loan you can’t really afford to pay back, or they may deny you when you should have been eligible.
o Lots of businesses are required to have one or more of these insurance types: General Liability, Worker’s Comp, and/or Commercial Property. The company you get this insurance through could decide to perform an audit at year’s end, and the purpose for this is to see if you’ve had enough coverage for that year. For these audits, you may need to provide the insurance company with financial statements, payroll reports, or other documents. If your documents aren’t accurate, you may have to pay the difference between your beginning of the year premium amount and the amount of the coverage you should have had. There’s no way around these mandatory audits, and if you don’t have the documents they’re requiring and don’t do the audit, your insurance premium can be increased, your policy can be cancelled, and, if you owe a premium difference, you can also be sent to collections.
o If you decide to sell your business, prospective buyers will more than likely want to review the company records to see whether it’s financially healthy. Incorrect statements could mean that the valuation of your business is lower than it should be, or it could scare off potential buyers altogether.
o If someone who has intimate access to your business accounts commits fraud against you, it could take much longer than it might have for anyone to realize it, costing you more money down the line.
o If your portfolio includes different types of jobs, products, courses, etc. and you don’t track the profitability of each item, you have no way of knowing if you’re making or losing money. You may need to or be able to increase your prices, or you could be losing money because the costs of creation or fulfillment could be more than the revenue you have coming in.
o Without updated and correct reports and statements, if you’re having trouble with cash flow, you won’t be able to make any real-time adjustments to where and when you’re spending. If you aren’t able to get things in the black, you may end up pumping your personal money into the business or having to take out a loan.
Just knowing what you have in the bank isn’t enough, it’s important to also take a holistic look at the overall health of the company. The only way to avoid issues stemming from this lack of information is to keep up on your books. Whether it’s you or someone you trust, someone needs to be keeping up on the ins and outs so you stay informed.