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12 Financial Warning Signs -
Is Your Business In Trouble?
By Leah Thiss of BBBS Inc.
One of the most important tasks facing a growing business is
keeping watch over the money flow. In many cases, smaller businesses rely on
the owner’s ability to keep the figures in her head or often assume that as
long as cheques aren’t bouncing, everything is fine. Financials are then
reviewed at the end of the year for tax purposes and there is a sigh of
relief if everything looks like it’s in order.
As the business grows, managing your finances this way can put your company
in jeopardy. Errors and accounting irregularities may not be caught until it
is too late. Growth may not be managed properly resulting in significant
strain on profitability and cash flow. Strategic opportunities will
potentially be missed. Or worse.
The good news is that by keeping accurate income and expense records, and
learning how to interpret your accounting data, you can turn your financials
into a strategic planning tool. Rather than merely tracking your income to
determine what taxes are due, you can use your financial data and insights
to produce higher profits. Let’s see how you’re doing. These are some of the
most common financial mistakes that are made. If you answer “yes” to any of
the following warning signs, you need to take corrective action:
1) Are You Operating Your Business By Your Chequebook? If you
find yourself making decisions based on the balance in your chequebook and
perhaps even calling the bank to check the balance before you write cheques,
stop reading and seek professional accounting support. The balance in your
chequing account does not accurately reflect your true cash position.
2) Are You Receiving Phantom Invoices? If you’re continuously
mystified by invoices coming in from suppliers or vendors...you shouldn’t
be. Be sure you limit who can make purchases on your company’s behalf, and
have a system to keep a record of all approved purchases.
3) Are You Short on Money to Pay Your Bills? If you’re
surprised that you do not have enough money in the bank to pay the bills, it
should be no surprise that you’re in trouble. Overdraft protection and a
line of credit are good back-ups in times when cash in is not meeting cash
out requirements, however tapping into those resources should be the
exception and you should be well aware (not surprised) when a short-term
loan is going to be needed.
4) Are You Not Getting Monthly Accounting Reports? You should
be reviewing accurate accounting information including balance sheets,
income statements and cash flows, on a daily, weekly or monthly (at minimum)
basis. If not, you’re vulnerable. These reports are easy to prepare, even
with the most basic accounting packages. Learn how to read and respond to
these reports.
5) Are You Unable to Furnish Information to Your Banker or Investors?
They need to have confidence that your company has the ability to
provide proper, timely and accurate financial information - especially if
you are seeking working capital from banks or investors, and equipment
leases from suppliers.
6) Is Your Accounting Backup Information Piling Up? Rather
than sitting in piles, this information needs to be matched with invoices,
payroll records, vendors’ cheques, etc., to verify accuracy and be readily
accessible for reference in the future. Make it a priority and avoid future
frustration as you try to locate that one document you need.
7) Does Your Inventory Have You Baffled? Know the value of
your inventory. And if you find yourself going to pick inventory, only to
find that those items don’t exist, but your records say otherwise…what
doesn’t exist here is accurate accounting, and what you have instead is a
huge potential vulnerability. Discovering missing inventory months after it
is missing and the trail has inevitably gone cold, is too late.
8) Are Your Financial Questions Going Unanswered? You should
have immediate answers to: What payables are due? What receivables need to
be collected? Are we maintaining our terms for payment? What customers are
paying on time? Value of our inventory? How much did we make on this
project?
9) Do You Have Taxing and GST Questions? Do you know the
approximate amount you will owe in taxes or what tax refund/credits you will
be receiving? Are you reporting your taxes in a timely fashion as required
by law?
10) Are You Lacking the Required Payroll Documentation? You
should have the required backup documentation for each employee including
timesheets and employee tax information. This information should be
organized and easily accessible.
11) Is Your Business Not Following General Accepted Accounting
Principles? Do you know what these are? Generally Accepted
Accounting Principles (GAAP) of Canada provides the framework of broad
guidelines, conventions, rules and procedures of accounting. You need to
have the appropriate internal accounting controls to protect your company
from fraud and to ensure ethical business practices.
12) Are You Unprepared for an Audit or Bank Review? It could
be a tax, state, investor or bank audit/review. Are your records in order?
Do you know what they will need to review?
Don’t ignore the warning signs! Often times business owners/CEOs are
required to wear many hats, but no one can be expected to be an expert in
all areas. Trying to handle everything yourself or taking short cuts in
critical areas like finance will limit your growth. Focus on your core
competencies and delegate or outsource the rest. This is how you will best
serve yourself, your employees, your shareholders, your customers, and the
future of your company.
Leah Thiss is the CEO & President of BBBS Inc., an outsourced
accounting & bookkeeping company. She has an extensive financial, management
& technology background. Contact:
leaht@bbbsinc.com or
www.bbbsinc.com
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