In Pursuit of Profit
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Good data enables informed decision-making, which is reason enough to clean up accounting records. But clean financials are more than just desirable – in some cases, they are specifically required. For instance, acquiring investors or partners is one scenario where clean financials are essential. Providing flawed financial data can botch a pending deal or result in penalties later. Furthermore, these records are always required in the event of an audit. Not having them can delay the audit process and providing muddled or incomplete records can result in penalties and other undesirable consequences.
For a business to flourish, it needs clean books.
Deciphering whether you have a problem, auditing problem areas, and resolving identified issues is crucial for cleaning up accounting records.
Determine if You Have a Problem
Before conducting a formal examination of the books, it is essential to determine whether a problem exists. Typically, businesses with remarkably messy or incomplete accounting records understand that they have issues that need to be addressed. However, companies with more minor discrepancies or less obvious problems may not have the foresight to understand what the root cause is and the knowhow to remedy the underlying issue.
These common signs can signal accounting record issues:
These issues are the smoke that signal a fire somewhere in the books. A business should clean up its accounting records if any of these red flags are present.
Analyze Problem Areas
Once it becomes evident that a problem exists, the difficult part begins. Knowing where to look to find the root cause is often the hardest aspect for business owners. While these steps do not necessarily need to be taken sequentially, these are the most common place to find issues.
Follow this roadmap when closing the books to thoroughly audit financial records:
Regardless of size, industry, or formation-type, any business with messy books is in danger. But despite the clear risk, some business owners choose to ignore or delay cleaning up their financials. Often, they are overwhelmed by the mechanics of hiring an accounting firm or external auditor. They ask, “How do I find the right company?”, “Will it be expensive?” and “Where do I even start?”
Remember, it is always better to get help right away once a problem has been discovered. Waiting only allows issues to compound, requiring more drastic measures to fix the problems later. This is an especially salient point because, depending on the nature of the problem, it may take a considerable amount of time to fix. Delaying assistance only puts the business further behind as problems continue to mount while help is on the way.
Tasking internal employees to clean up the books can create more substantial issues down the line if problems are exacerbated by well-intending employees. The reality is that many small-to-medium sized businesses do not have the personnel needed to fix complicated financial issues. Many bookkeepers and internal accountants are siloed from all the information they need to do their jobs properly, and in most small businesses, the main employee(s) handling the books do not have a financial background at all. This is typically why problems arise in the first place, which is why it is illogical to ask the fire setter to put out the fire. However, this is nothing to be ashamed of – messy books commonly arise from knowledge gaps. While a business owner, partner, or top employee may be great at their main day-to-day tasks, they may also just simply lack the financial acumen to be solely responsible for the books.
In these situations, hiring an accounting firm to fix problems within financial records is a smart investment because outsourcing these functions saves time, mitigates losses, and helps the business to avoid fines and penalties.
A third-party accounting partner can:
Find out how Accounting Solutions Partners can clean up your books to establish proper protocols to avoid future problems. Let us fix your broken accounting processes and clean up financial records and entries to facilitate better decision-making and preparedness. Contact us here today!