While evaluating a company, there were some questions about how some financial transactions are handled on the books. Multiple theories of what could be going on were brought up. I finally said, “I’ll bet it’s just small business accounting.”
After an explanation from the owner, we all came to realize it was nothing more than small business accounting. Because during the year nobody generally looks at their books except the owner and their accountant and sometimes their bank. They don’t worry if things aren’t done exactly the way they should be throughout the year because they know there will be year-end adjustments to get everything in line.
This was not too bad of a case. As I have said and written many times, one of the problems with small businesses is the accounting department is often treated like Cinderella, the weak little stepsister off in the corner. For many owners, they love their product and want to grow their business so it’s a pain to have to deal with all the accounting detail. It’s the same as why salespeople would sooner be out making a sale than submitting paperwork.
And when it comes time to exit the company and sell it, it’s often an issue as the buyer, their CPA, and the bank want to know exactly what they’re getting into. It’s why one of my four immediate things an owner can do to make their company ready for sale is to have great financial systems, so you have accurate financial statements. Make it so those on the outside know exactly what is going on when they look at your financial statements.
“Invest in inflation. It’s the only thing going up.” Will Rogers