Having timely, accurate accounting information is essential to running a healthy business. As I progress through my business career and interact with lots of “business” people, I’m noticing a scary trend. Many business owners do not see the need to have timely, accurate accounting done by someone in house (controller) or an outsourced CPA firm. This worries me. Let me tell you why…
1. You will have difficulty selling your business.
Think a successful business or business owner will take your word on how well the business is performing? Think a couple of spreadsheets will do the trick? The answer is a resounding NO! I’ve personally seen a business owner try to sell his business to a potential suitor only to be turned down and ultimately questioned due to a lack of timely financial statements. Deficiencies in this area lead successful people to question just how serious you are about your business. It tells them that you don’t value data and make sound business decisions according to that data. Essentially, you’re flying by the seat of your pants or running the business off feel or emotion. Numbers are black and white and tell the picture.
2. You won’t proactively plan for taxes throughout the year.
Wouldn’t it be nice to have a projection of your Federal and State tax liabilities, at least, quarterly? Imagine taking large sums of your money out of your business only to realize later that most of that money should have been used to pay tax liabilities. Having taxes estimated on a regular basis allows you to set aside tax funds, operate your business, and take personal distributions with the remainder without regret.
3. Growing the business will be hard.
A lack of financial records will make it difficult to expand, open a new location, or build a talented team. Similarly, getting financing will be extremely difficult. How will you prove to any lender that your company is strong financially and able to pay the debt back timely? Employees will also recognize your lack of financial reporting when it comes time to account for out of pocket expenses. Would you work for a company that is cavalier about employee reimbursements? Without accurate, timely financial reporting, growing your small business will be hard.
These are just a few of the many reasons to get serious about having timely, accurate accounting for your business. This data is invaluable in making proactive financial decisions.