Something we hear from e-commerce sellers is a reluctance to clean up their books: “If I understand my finances, isn’t that all that matters?” But readable books should be a priority for every business owner, and this week, Tyler explains why.
The first, and arguably most important, reason to clean up your accounting is for tax compliance. Simply put, complying with tax regulations keeps you out of jail.
Aside from that obvious concern, however, having clean, readable books will help you defend your tax position in case of an audit or even a CPA’s line of questioning.
At Seller Accounting, we also find that most sellers are not aggressive enough with deductions when filing their taxes, and working with a firm to better organize your accounting will allow your CPA to find every cent you’re able to ask for back.
The next reason to clean up your books is for the purpose of control, or knowing where your money is going.
Yes, having a running tally of money spent and money earned is one way to know what you’ve currently got in the bank, but having books that are correctly reconciled and balanced month to month will allow you to put a name on every dollar going in and out instead of just offering a cursory understanding of your bank balance.
In the event that there’s something fishy going on with your funds, like a vendor double charging you or an employee skimming off the top, well-organized accounting is a great way to catch these issues early. If the numbers don’t add up at the end of the month, you’re less likely to go very long without resolving the issue.
If you plan to need to raise capital for your business (and who doesn’t?), readable accounting is key.
Banks and investors know what a good set of books looks like, and the less organized you are when you approach them for cash, the less confidence they’ll have in you as an investment opportunity.
Having a solid set of books makes you look like a more competent business owner worthy of taking a risk on, and that in turn can offer you opportunities for lower interest rates and better loan terms.
Cash Cow (Profitability)
The “cash cow” of profitability may be the last on the list, but it’s a high priority for most sellers.
Just like it’s impossible to drive a car well with mud on the windshield, it’s impossible to lead a profitable company with “muddy” books. Working with an accounting firm or solo bookkeeper will help you clear the junk out of your accounting so that you can successfully steer your business in the right direction.
And similarly to the car analogy, seeing your financials cleanly will help you steer clear of anticipated challenges and market changes to make better choices as a business owner.
Ready to clean up your books? Get in touch today for a free discovery call.