I think most of us can agree that the last year has been messy, in more ways than one – which is why I want to talk a little bit about financial spring cleaning.
COVID has exposed so many of the material weaknesses in our businesses, mainly located in our finances and our accounting/reporting. And these weaknesses, believe it or not, were exposed largely due to the CARES Act and some of the funding mechanisms that came about because of it.
Take PPP for example: many companies didn’t know how to pull together the necessary documents to support their application for a PPP loan. Not only that, but some of these companies didn’t even have basic financial record keeping, relying instead on bank statements or credit card and merchant processing statements to represent their income. This was a big deal because they needed to complete a loan application and bankers like a tidy package of clean documents to accompany the application.
So how do you construct your financial statements from bank and merchant processing statements? Sure, all those documents are one piece of record-keeping and reporting, but the problem is that now you’ve got some credibility issues because you have no real financial statements for your business and no proof that your company is actually operating as a company.
The best you can do in that case (maybe) is to pull your tax returns from the prior year. Those will get you part of the way. But in the case of the second-draw PPP loan, you need to prove that you had a quarter in 2020 that was lower than a quarter in 2019. How do you do that if you don’t have financial records?
The issue with not having financial records for your business is that you cut yourself off from programs specifically designed to help you as a small business owner. And when you don’t have those financial records, you’re unable to prove that you need the help being offered and are qualified for and worthy of those programs – which has become yet another hardship for small and midsize companies.
So, do yourself a big favor and do the financial spring cleaning you need to do to get your house in order.
What does that financial spring cleaning look like within a business? It looks like getting an accounting system that can pull in your information and generate reports for not only third parties, but also for you, the business owner, because you need to know what’s going on with your company. That knowledge comes from accurate, high-quality financial reports that you know you can trust and that tell the story behind the numbers.
You need to have that accounting for not only you, but for your business, because frankly, if you don’t have financial records, you’re screwed. You’re screwed because you have no proof that you even operated your business during the prior year. You have a serious lack of credibility with basically everybody.
Believe me, just this little bit of financial spring cleaning is going to pay off for you in big ways.
Well, for starters, bankers don’t fund people with hobbies masquerading as businesses (which is what you have if you’re not keeping good records). You’ll fill out a form and then that will be the end of the line. They’re unable to help you because you can’t prove you have your act together. After all, how can they help you if you can’t prove you have a legitimate business enterprise?
Personally, I’ve had people come to me and tell me that they don’t do QuickBooks, they just have a Stripe or PayPal account. And my immediate thought is always this:
If you don’t have some basic level of financial reporting and data gathering at a minimum in your business, how do you know if you’re making money? How do you know if you’re profitable or not?
Moreover, you can’t just hand a shoebox full of receipts to a banker and say, “Can I have some money?” You need those financial reports. This gives you a level of credibility with your friendly banker.
And if the answer to any or all of these questions is “no,” now is the time for some financial spring cleaning. Let’s get it done!
P.S. When you’re ready, here are 3 more ways I can help you grow your business (and its value):
1. Dig even deeper with another post about positioning your business for the world after COVID.
While financial spring cleaning is a big part of positioning yourself and your money for the future, there’s more to setting yourself up for post-pandemic success. Check out some more key elements right here.
2. Get to know me and the TurboExecs team on LinkedIn.
We do much more than supporting companies through due diligence. My LinkedIn page features financial management advice, red flags you’ll want to know about as you run your business, and special access to free resources from TurboExecs. Connect with us here.
3. Work with us to get your financial clarity, control and confidence back – and grow your business without all the chaos.
Our team excels at putting business owners back in the driver’s seat of their organization with better reports, the right people on their team and a customized path forward (and
that’s just the start.) Contact us to get started.