You might be in financial trouble if...

I was at a business planning workshop last week. Each of the participants was required to do a short presentation about their business. Then, the group asked questions and offered advice. 

One business owner in the group shared his story, but the financial numbers didn’t sound quite right. When another member questioned him, he said, “Well, my bookkeeper takes care of all that. We use QuickBooks and it pretty much does the accounting for you.” 

Gulp. 

If you have ever said that, you might be in financial trouble. 

Turns out this fellow didn’t know his assets from his elbow. (Or from his liabilities and equity.) He got lots of great suggestions for how to get his arms around the financial area of his business. I’m happy to share what we recommended. 

It’s your money and your responsibility. 

As the business owner, you are the financial manager. You can delegate the day-to-day accounting, but only if you understand it and have systems in place to make sure you, and your team members, are protected. 

And, it’s also your job to make sure the numbers are current and accurate. I recommend you use a professional tax preparer or CPA. Still, it is your job to make sure that you stay in compliance with Uncle Sam, and keep up to date with your local and state tax requirements. If something goes wrong, if your taxes aren’t paid accurately or on time, you are the one who is on the hook. Not your bookkeeper or your accountant. 

Not sure if you are in financial trouble? You might be (probably are) if… 

You don’t look at the financials. You have hired a bookkeeper and/or a CPA. You consider it their job to track the money while you do what you are best at: the technical work. 

Sorry, it just doesn’t work that way. If you really don’t want to learn basic finance and accounting, you can work for someone else. It’s just irresponsible to be the business owner and abdicate these duties. Before you pack it in, consider this: Accounting is probably a LOT easier that you think it is. You, who can figure out piping and venting and controls, could learn balance sheet basics. Give it a shot. Once you get a handle on it, reviewing the financials only takes minutes a day, hours a month. Really. 

The balance in the checkbook is your only financial metric. Cash is key! So are profits. So is gross wages as a percentage of sales. So is your debt to equity ratio. There are only a handful of critical numbers. But, there is more to it than an occasional glance at the checkbook. 

You have a bookkeeper who does everything…and never takes a day off. In my experience, the one most likely to rip you off is the bookkeeper. The opportunity exists when you never look at the numbers and she or he has total access. That can be a tempting situation if your bookkeeper’s life takes a dark turn. Behind many embezzling stories is an addiction of some sort. Pay attention. 

The bookkeeper’s resistance to taking a vacation is a red flag. TIP: Pick up and open the mail yourself. Weird stuff sometimes shows up in the mail: dunning notices, odd charges on the credit cards, receipts for purchases you didn’t approve. Insist everyone takes a vacation, and you can fill in while the bookkeeper is at the beach. 

Your bookkeeper gets very defensive when you ask questions. Beware if you get grief when asking about what the numbers mean. Basic accounting isn’t that complicated and you have a right to know what is happening. 

TIP: Learn how to reconcile the checking account and make it one of your responsibilities. Document this and other accounting procedures, and create a Financial Manual. You can do the accounting yourself if need be, or use the manual to train someone new. You never want to be held hostage. 

Your bookkeeper is months behind with the data input. Spend a day sitting elbow to elbow and discover the “rocks in the road.” Sometimes, the bookkeeper isn’t getting the complete info from the field. Oftentimes, the owner asks for all kinds of data that no one is looking at, but it takes a lot of time to assemble. Spending quality time together can help you and your bookkeeper get on the same page and streamline your systems. 

Your accountant is too busy and rarely calls you back. Your CPA is responsible for helping you stay in compliance and pay the appropriate amount of taxes. Have a “no extension” policy and work with your tax preparer to be on time with rockin’ right financials. If you are getting blown off, find a CPA who is nice and responsive and willing to help you and your bookkeeper become savvy about your financial reports and situation. 

TIP: Often CPAs, are not great with bookkeeping. However, they usually have a “lieutenant” on staff or in their contacts who is a crackerjack bookkeeper. If you need some tutoring, this can be a good connection. 

Other signs you may be in financial trouble include: 
• You don’t know what a balance sheet is. 
• Or a P&L. Or an income statement. Or that they are the same thing. 
• You filed an extension for last year’s taxes. 
• You forgot to file an extension. 
• The last tax return you submitted was for 2008. 
• Your financial reports are messy. They have accounts with ALL CAPS and mis-spellllled werds and funny account names, like “Misc Expense/Payroll Bumps” (true story). 
• The chart of accounts list is 45 pages long. 
• You don’t know what a chart of accounts list is. 

How to get out of trouble…

Get the financial reporting cleaned up. Go line by line, down every account on the balance sheet and profit and loss. Ask questions until you are clear about what the account represents, and that the number is right. 

Meet with your bookkeeper and accountant to create your game plan for getting the weird stuff cleaned up before year end. 

Do the accounting yourself if you can’t afford a bookkeeper. Raise your prices so that you can afford some help in the future. 

Familiarize yourself with accounting lingo. Visit www.ellenrohr.com. On the main page, there is a “Glossary of Accounting Terms” where I attempt to explain accounting in real-people speak. 

Press on! Intend to become a good Financial Manager. Read books, take workshops, find mentors, drill down and dig in, and just keep after it. 

Get out, and stay out, of trouble. 

For more on business planning, check out The Biz Plan Challenge. You, me, other business builders…working in real time to craft customized Biz Plans for creating your ideal business and best life. www.bizplanchallenge.com.

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