Learning Center

The Hidden Costs of Sloppy Bookkeeping

A recent Stanford study reviewed the aftermath of the Enron collapse and the repercussions to Enron's accounting firm's former clients. The primary trend they identified was when former clients issued accounting restatements or revisions because of less-than-accurate bookkeeping; there was an increase in the salary demands at the affected companies. 

The takeaway is that risky or sloppy financial reporting can drive up a company's labor costs. Labor is usually one of a company's biggest cost centers. The Stanford researchers report detailed that a company with "significantly above-average-quality reporting can cut the cost of wages, taxes, benefits, and other employee-related expenses by $3 million." This applies to larger institutions, but the same formula would apply to companies with less revenue and head count. 

Many small businesses do their books or hire inexperienced staff to cut costs. While this may seem like a cash saving in the short term, the long-term results can add up to a substantial amount.  

Sloppy bookkeeping can lead to several hidden costs:

  1. Penalties and Fines: Inaccurate financial records can lead to incorrect tax filings, resulting in penalties and fines from tax authorities.

  2. Lost Time: Correcting bookkeeping errors can be time-consuming. This is time that could have been spent on other aspects of the business.

  3. Poor Decision Making: Inaccurate financial data can lead to poor business decisions. For example, you might invest in a new product line based on incorrect profit margins, leading to financial losses.

  4. Cash Flow Issues: If you're not accurately tracking income and expenses, you could run into cash flow problems. This could potentially lead to the need for emergency financing, which often comes with high interest rates.

  5. Audit Risks: Sloppy bookkeeping increases the risk of an audit. If audited, you could face additional fines and penalties, not to mention the stress and time involved in the audit process.

  6. Damage to Business Reputation: If your business consistently makes financial errors, it could damage your reputation with vendors, customers, and financial institutions.

  7. Loss of Opportunities: Without accurate financial data, you may miss out on opportunities for growth or investment.

  8. Overpayment: Without accurate tracking of expenses, you may end up overpaying vendors or not taking advantage of available discounts or tax deductions.

In the long run, investing in solid bookkeeping practices or hiring a professional can end up maximizing profits. If you are concerned about your books, feel free to contact our office to review our solutions. 

Share this article...

NEVER MISS A STORY.

Sign up for our newsletters and get our articles delivered right to your inbox.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Social Media

Rose Tax & Financial

8 Pinon Ave
Cedar Crest, New Mexico 87008
Mon - Fri: 10:00am to 6:00pm
Sat: 10:00am to 2:00pm

Check the background of your financial professional on FINRA's BrokerCheck
Avantax affiliated Financial Professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state. Securities offered through Avantax Investment Services℠, Member FINRA, SIPC, Investment Advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. 972-870-6000.
The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management® does not provide or supervise tax or accounting services, Avantax representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management® or its subsidiaries. Avantax Wealth Management® is not responsible for and does not control, adopt, or endorse any content contained on any third party website.
This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences.
For Important Information and Form CRS please visit https://www.avantax.com/disclosures.

FAQs Frequently Asked Questions
Type your message here.
Please fill out the form and our team will get back to you shortly The form was sent successfully