When a men’s suit maker ran into debt and borrowed from Peter to pay Paul, the owners realized they needed outside help to fix the situation. Enter Joe Franco, President of The OCI Group and CPA with nearly 20 years of accounting experience. He realized that although the business was relatively simple, a lack of solid accounting left them blind to their true financial situation. Franco and his team looked at the company’s books and discovered that many of the loans taken out by the company had exorbitant interest rates of 18-24%.
“So finally, after months and months and months of cleaning up, we caught up with their tax returns and they were actually able to approach a bank for a more reasonable loan. They got their loan rates from low to mid -20 on average, to the few tens or 10% between factors and bank loans and they were saving over $30,000 a month just with interest charges,” Franco said.
This type of accurate and timely accounting is crucial to the success of any business. Here are two reasons companies need their accounting metrics ready and up-to-date for purposes other than compliance and tax.
At some point, many businesses have hit a wall. Their owners are good at what they do, whether it’s developing a SaaS app or service, running a restaurant or law firm, or designing cool clothes. Especially when businesses deal with online distribution, they need more capital to maintain their growing inventory. According to Franco, companies “go to an investor or a bank and the bank asks for two things, most current tax returns and corresponding financial statements, and often they have neither. They’re behind on their tax returns, they don’t have financial statements that make sense.”
Regularly updated financial statements demonstrate that a business has a clear vision in place and is tracking its progress to get from point A to point B and beyond.
To better manage
A clear financial picture of a business allows the business owner to use better decision-making, with one of the key levers being the implementation of accounting software like Quickbooks – or heavier software – to track books. Additionally, consistency is key, and Franco recommends documenting your accounting processes, procedures, and segregation of duties, allowing for tighter control over a company’s cash flow.
Business owners must also adapt their accounting practices to the size of their business. A business that generates a few hundred thousand dollars in revenue is likely ready for an accountant, while a larger business – generating 15-20 million in revenue – is well served by having a full-time controller supervising an accounting staff. . The volume of transactions is also significant. Imagine, a car dealership selling 100 cars for $40,000 each will generate $4 million in revenue, while a temporary sticker tattoo business will sell 20 million stickers for $0.20 each and generate $4 million of income. Same revenue levels but completely different complexities and turnover.
Succeeding in the modern business world means managing your money carefully, ensuring you always have a clear picture of the financial side of your business. Implementing strong accounting practices allows companies to get the numbers they need to make the best decisions: “You can get very relevant metrics,” Franco said. “That’s kind of the point. Look at your sales trends. Look at your spending trends. Look at how your business is growing.” To learn more about accounting firm valuations, visit Veristrat.