4 Bookkeeping Mistakes That Are Distorting Your Company Value
Story time.
We once had a client out in the mid-west. They were a contracting company with multiple income streams. They came to us with the firm belief that they were an $8 million dollar a year company. For two days we reviewed their books, assessed their expenses, chart of accounts structure, and verified their assets and liabilities.
When we finished, we realized they were a $13 million dollar company.
And that's how we made one company $5 million dollars in only two days.
How did we do this? Well we found four common bookkeeping mistakes that contributed to them not knowing their true value.
A poorly setup Chart of Accounts caused confusion in categorizing - this led to income being directed to expense accounts.
Items and Services had been used for reimbursements and expenses, not sales, so "profit" was categorized incorrectly.
Income was not being accrued in real time, so their current sales were not being shown, only actual cash receipts.
Their staff had not changed with their growth, so the skills were limited and the overall understanding of the books had been outgrown.
So what could be done? After fixing the mistakes made previously, we made some simple but powerful revisions:
Cleaned up the Chart of Accounts to accurately separate COGS and expenses.
Revised and set up new service items that represented the company's true operations.
Created a process to accrue income and taught the staff how to maintain it.
Recruited and expanded the accounting department, and brought in a full time Controller.
These revisions made for a powerful increase in valuation for this company. But what if some of these errors are causing you to see that you're making more than you actually are? This could be detrimental to cash flow and tax time.
If you haven't taken the time to reassess your team or your books in several years, make 2020 the year you prioritize having an assessment done on your financial process!
