January 24, 2020
In this blog series, we aim to help you unlock unrealized value in your business and go beyond what your business is today. There are always new methods to build value in your business and given the adequate time you can execute a plan to realize it. In this fourth installment of the series, we discuss the necessity of professionally prepared and consistent financial statements.
Factor #3 Reliable Financial Information
Investing in documents prepared by a chartered professional accountant is an excellent investment in your businesses’ future. Even if an auditor does not find any mistakes in your financial statements, merely having them checked by an independent third party increases their reliability. Never cut corners expecting to get away with anything less. Financial statements allow for informed decision-making and strategic planning. Having reliable reports provides you with the proper tools to manage your business on an ongoing basis. The quicker you identify the issues in your business, the lower the subsequent losses. Losses not only mean money, they also include time and resources that could have been used productively elsewhere.
A professional accountant will be able to identify accounting issues such as inconsistent accounting practices, inventory management, confusing personal expenses with business expenses, improper depreciation, and amortization methods.
Even the smallest business can benefit from a proper accounting system and procedures created by your accountant to stop fraud, theft, and accounting errors. Small business owners are more liable to be the victims, rather than the perpetrators, of financial statement fraud. All too often, a lower level bookkeeper, controller, or partner will manipulate the books to hide theft or embezzlement. If illegal activity is taking place, there is no better way to catch it than through inconsistencies in the numbers. This is why your accountant spends time reconciling your accounts and checking entries regularly. It will determine whether anyone has interfered with any part of the business or if mistakes have occurred. For this reason, it is essential for the owner to have some understanding of accounting and internal controls.
Another fraud control involves moving personnel into different job positions periodically or having someone else perform their job while they are on vacation. This may reveal fraudulent behaviors as it allows a second employee to review the activities of the first. Segregation of tasks ensures that employees who handle cash or other assets do not also have access to accounting records. This prevents staff with access to both assets and accounting records from covering up their thefts.
When the time comes to sell your business, adequately organized reports and working documents will provide reassurance to a potential buyer, leading to quicker turnaround times and better offers. Potential buyers will shy away from improperly prepared statements because a business owner who is careless, or even fraudulent, with their financial statements is likely to be careless or fraudulent with other vital aspects of the company, as well. Accurate financial records and supporting documentation will validate the claim that your business is what you say it is.
Having reliable reporting provides you with the proper tools to manage your business on an ongoing basis. It is imperative to measure and to measure your progress properly in order to successfully build profits.