3 Key Components To Identify Errors In Your Business FinancialsMay 04, 2022
Direct question time - are you catching errors in your business finances early enough or are they creeping up on you during tax time?
Oftentimes as business owners we catch financial errors too late and I'm on a mission to put a stop to that and put the power back in your hands as a CEO to turn things around as soon as they happen and not at the end of the financial year.
Here are 3 key components you can use TODAY to quickly identify any errors going on in your business financials.
Check your owners distribution account
Recently I had a friend ask me to review her accounts as she couldn’t understand why she wasn’t making a profit within her business. I offered to do a financial review for her and I ended up identifying a few things that saved her a lot of money on her tax return
One of the big things that we spotted was within her owners distribution account in Quickbooks. It became clear to me that her bookkeeper was putting things in there because she wasn’t sure what to do with them and wasn’t asking for clarity from Maria. It turns out a lot of what we found there were legitimate expenses that could be written off her tax bill.
Make sure that you are claiming all your business expenses to your business tax account so that you’re not losing out money when it comes to this. If you have a bookkeeper doing this for you then make sure that they contact you with any queries (or send you over your owners distribution account to review for them from time to time) and double check so that they’re not putting things against the wrong accounts. Doing this one thing could literally save you $1000’s in taxes each year.
Better yet try to not mix any personal transactions in with your business accounts. Once you start mixing business and personal you're actually opening up your personal account for audit, should your business get audited.
Run a Cash Flow Statement
Not everything shows up on your profit and loss statement but the items that do not, will show up instead on your cash flow statement.
Most accounting softwares will be able to automate running this report for you. This statement will show you cash items coming in and out of your account that are not on the profit and loss statement, so for example any principal payments for loans will show up in there.
It’s important that you’re aware of what cash is flowing in and out of your business at any given time.
Be aware of the behavior of your accounting team
A few years back, probably six or seven. I was working with a client and a neighboring company that they were working with, who were making a least multi 8-figures, had someone steal from them.
It turned out to be someone on their accounting team who had been with them for over 15 years but in the last four had started stealing from them. Now this is easily done when the CEO barely looks at their numbers and trusts their team to manage it all which is why it’s so important that you review your figures regularly so you do have an idea of what’s going on.
In this instance the employee had been a model employee for many years but after some personal issues involving a DUI she started to steal money. Now I’m not saying that people can’t make mistakes but the DUI was a warning sign of other deeper issues happening with her in her life. It turned out that she had stolen $100,000 a year (!!!) from the company through fake travel and entertainment reports. In fact it was only because the company was going through an audit that this was all uncovered.
So if your gut is telling you something, listen to it, pay attention to the behavior of your accounting team, have a fresh set of eyes, look at your books every once in a while, it's not going to hurt. And maybe it's going to help you have peace of mind and sleep at night, knowing that everything's in line.
Interested in a financial review? If you have Quickbooks desktop or online and are a 7-figure business owner get in touch. Prices start from $500 for me to take a deep dive into your books and make any suggestions or improvements that I see. I do look at more than these three things but these are a great place to start when you are a CEO trying to get more comfortable with your numbers.
Watch my YouTube Video on this topic:
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