As a small business owner, your answer to this question usually has a direct correlation to if/when you’ll ever achieve substantial profitability and growth. One of the big differences between fast-growing, profitable small to medium-sized businesses and those that flounder is that the former typically has an owner that places a high value on accounting. During my 15 year career as a casino developer and operator, I never took my eye off of the accounting ball. The ability to raise financing, make lightning-quick strategic decisions, and (most importantly) to sleep at night was directly related to how timely and accurate my accounting was for the multitude of businesses that I owned.
As a CPA and former auditor, I had a built-in advantage as a business owner. I had seen what happened to companies that were out of control during my days as an auditor and the consequences ranged from massive theft to bankruptcy.
The following are my top three reasons to allocate proper attention and resources to your accounting and financing functions.
1. Online, Real-time Decision Making
The most valuable and effective accounting system in a company allows the owners to use the accounting system as a tool for critical decision-making. Job costing, project profitability, hiring decisions, large equipment or product line purchases, and other major business decisions cannot be intelligently made without timely, accurate financial statements.
Oftentimes I encounter business owners “shooting from the hip” when negotiating contracts for new business, deciding to expand to new product or service lines, or when making decisions that have huge financial impacts on their business. Many times I have to be the “don’t shoot the messenger guy” after analyzing the impact of the decision on their business. If this business owner would have had up-to-date, useful financial tools to work with, a costly decision could have been avoided. However, the scenario I run into most often is the “I need the bank loan tomorrow” email. The owner then describes to me how his or her banker doesn’t understand the company’s financial statements (if they indeed have any) and thus won’t approve the loan. More often than not, deals fall apart as sellers, landowners, or strategic partners get fed up with inexcusable delays. These delays and missed opportunities are caused by a lack of timely, clear, and sophisticated financial statements and schedules.
2. Credibility in the Financial Community
Bankers, investors, and private lenders will run in the other direction if they perceive your books as being out of control, untrustworthy, or messy. Look at it this way—if you invite someone to your house and it’s a complete mess, that mess reflects on you as a person and may impact that person’s desire to be associated with you. It’s no difference in the finance world. In today’s tough lending environment, banks have no patience for shoddy or out-of-control accounting and bookkeeping.
Bankers and investors want to know that their loan or investment is safe with you and your company and that it won’t be wasted or misspent due to a lack of accounting controls. They also want to know that funds won’t be used for personal purposes, which is more difficult to track if the accounting is deficient. If you want your business to grow, you will need access to capital (investments, loans, etc.). This will not happen if you neglect the books.
3. Fraud and Theft
The devil loves a messy house and thieves love messy businesses. Most small business theft and fraud are engineered from within the organization. Unscrupulous employees, partners, or associates will view your business as their own personal credit card or 100% discount retail outlet. If your books aren’t controlled, these individuals will take note. Think of poor accounting like leaving your garage door open every night.
Sooner rather than later, a neighborhood thief will take note and you’ll find tools, parts, or bikes have gone missing. If business accounts are not meticulously reconciled every month, mysterious and unusual transactions will start flowing through bank and credit card accounts. Customer inventory, tools, supplies, and other valuable company assets may show up on eBay. The cost of hiring an experienced, reliable accountant versus losing money month after month is an easy decision. If sloppy and unprofessional accounting leads to substantial fraud in your company, by the time you’ve noticed the money (and perpetrator) could be gone.