Case Study 25 – A Small Business Books Cleanup Process

How To Turn Around A Small Business That Has Failed At Keeping Good Books And Records

Small businesses are notorious for poorly keeping good books and records. The lack of motivation seems to be due to the focus on getting sales revenue, and administrative tasks are sidelined. Unfortunately, if neglected for too long, it will be a fatal mistake for the business in a devastating tax or regulatory audit. Help is usually called in too late. If the business recovers, it is at a significant cost in accounting and tax fees, tax and interest, payroll penalties, and potential bankruptcy.

Reduced the amount of time it takes to clean up a small business’s books and records and set up a clean system by more than 50% of the time of troubleshooting the existing system, and saving more than 80% of the cost.

After numerous projects where I was called in to clean up a company’s books in a hurry due to some kind of emergency, such as a tax audit, or the need to raise financing, I found myself beginning to follow a logical process to rebuild their bookkeeping process as a foundation for financial management. The first step is to look at the books and assess the chart of accounts and the basic financial statements. I would also look at the trends in the financial statements from month to month. This might also include checking to see if the bank accounts have been properly reconciled. Anything else is rarely reconciled. The second step is to assess the skill level of the bookkeeping and/or accounting staff by talking to them about their processes and taking notes of the bookkeeping and accounting workflow and the condition of the documentation system. Then the third step is to create a plan to clean up the data in the books. This depends on the condition of the books and the skill level of the staff. That plan is used as I recommend to the CEO, CFO, or business owner (as appropriate). There is often resistance to changes, depending on the perceived need. A mindset change is needed in management to understand the need for keeping good books and records, using the current crisis as evidence, along with the cost of the clean-up process. The clean-up process is expensive, but the cost of taxes and penalties of a tax audit, or the consequences of the inability to get a seriously needed injection of capital into the business, is usually higher. Changing processes internally will avoid a future crisis similar to this one is logical. If it is for a tax audit, it means doing your best to clean up historical records. If it is for a loan, it means doing the best to clean up the balance sheet and income statement and usually implementing a cash flow statement, maybe going back a few years if possible. Generally, starting with bank statements. This work has traditionally meant greater clarity for the ownership and management of the condition of the business. They either avoid making fatal business decisions or use reality to restructure the company. Every case has resulted in a change of business strategy once they understood the reality of the condition of their business, avoiding the fatal path they were already on.