Blog | Small Businesses

Financial Records and Reporting in Accounting: Critical and Non-negotiable

October 27, 2022

Companies need up-to-date financial records and a strong team to succeed. 

Yes, for all of the typical reasons. Reasons like a solid foundation, good cash flow, and proper tax planning. But it’s more than these. Sound records and reporting are vital to all internal and external twists and turns your business takes throughout its life.

Let’s cover how up-to-date reporting in accounting areas affects the following four areas:

  • Bankable
  • Auditable
  • Sellable
  • Manageable

Is your organization bankable? 

Poor financial management is a top reason for companies going belly-up. However, fast or short periods of large success often end in the same way. 

Let’s say you’re the owner of a growing digital agency. 

You have enough cash and current recurring revenue to support a role you’ve been wanting to add to your roster — an operator. 

Things go well, with the operator (being a key player) at the helm of processes, the team is working like a well-oiled machine. And you? 

You’re off, closing whales, or just a lot more of your ideal clients.

Of course, this means hiring and increasing contractors. Depending on the payment terms of your clients (some are lengthy), you could find yourself in a cash crunch and need immediate funds.

You need to increase your line of credit.

The first thing a bank will ask for is your financial statements. Not having accurate financials can jeopardize getting that borrowed cash. 

And not having enough cash to produce the work could put you out of business. 

Maybe not in 30-60 days, but what if those whales don’t renew? Your team is great, but can’t fulfill that work, because your cash management isn’t where it needs to be.

Now, imagine showing clean books and the lead-up to your explosion of growth. Banks see the increase in cash reserves, where you hired your operator, see the incoming book of business in the next 90-120 days.

But they can’t see it if you’re not compiling the proper reports.

Are you ready for an audit?

Want to know another way a lack of reporting hurts your business? Getting audited without clear records.

Yes, that includes IRS and state audits. And it includes investors who want to do more than kick the tires of your organization.

Audit-ready financial records audit-ready is the goal. Both investors and the IRS require it.

Potential investors take a comprehensive appraisal of businesses they want a part in, and go through all your financial information and records. Like the IRS, angels and investors will make sure your books match up with your tax returns. 

And don’t be surprised if they ask about any audits by tax authorities. 

Is your business sellable?

Exit strategies are similar to audit due diligence. 

The term “strategy” implies you’re planning to leave somehow. And one of the most common exits is via sale of the company.

If you ever have plans to sell your biz, buyers will want to know what they are getting into (much like the investors, but a bit different). 

If you don’t know your numbers or your financial reporting isn’t clear — you won’t attract many buyers. In the end, you’ll end up selling at a lower price, if at all. Don’t discount that murky reporting potentially leads to millions coming off the price. 

Are you using your financials to manage your business??

Speaking of losing money, the biggest benefit of properly managing your accounting processes (via using and digging into reports) is noticing unforced errors in your money. 

You should be using your financial data to manage the day-to-day operations. Using reports to find errors, like one where we saved a client hundreds of thousands using only a well-kept P&L

Not only should you have reports — They should tell a clear story about the past while simultaneously helping plan for the future.

Be Bankable, Auditable, Sellable, and Managed (with reporting)

Momentum does accounting differently, and sets up reports that you’ll actually use. We help you determine the numbers that matter to banks, investors, your success, and yes, even the IRS.

Pin It on Pinterest

Share This