4 Ways Do-It-Yourself Accounting will Tank Your Business

 

We’re in a time when empowerment means do-it-yourself.  Spend a few hours on YouTube and you’ll find a myriad of crafts you can learn, from brewing your own beer to making a better soufflé.

No one, though, would claim you can learn to be a surgeon on your own, or how to fly a plane, or embark on any number of highly skilled tasks without expert coaching.  I’d argue the stakes for your company are just as high with do-it-yourself accounting.

Like surgery, skillful accounting can have a significant impact on the viability of an entity – in this case, your company.  You might think a self-created accounting system exists only at startups.  But I’ve seen many companies in the $20-million-to-$40-million range that have never had a real accounting process.  When the business starts to teeter, the owners don’t realize it’s because of the poor foundation of their DIY accounting system.

If you’re not convinced, consider the four ways that DIY accounting can limit your company’s growth  — or worse, take your company down as you try to grow:

  1. Just Keeping Score.   Accounting is a powerful tool for management to run a business.  A properly designed accounting system will help you answer not only “How were our sales in January?” but also, “What are the efficiency bottlenecks in my business?”   A good accounting system is more than a scorekeeper.  If your accounting is DIY, you won’t know what you don’t know.
  2. Inadequate Government Compliance.  It’s much easier to let government compliance slip with DIY accounting.  Issues can arise with sales, payroll, and business property taxes, among other areas.   Great accounting systems alert management of compliance needs and provide the information necessary to maintain compliance.
  3. Poor Cash Management.  By far the leading cause of business failure is poor cash management. The larger a business grows, the more sensitive it can be to improper cash management.  A properly designed and implemented accounting system can give current and future views of cash to maintain adequate liquidity. Just knowing how much money is in the bank right now is not good cash management.
  4. Missing fraud.  The Association of Certified Fraud Examiners estimates that an organization typically loses 5% of its annual revenue to fraud.  That is just a typical company average.  We’ve all seen news stories where a company loses much more than that, sometimes to the point of insolvency.  What’s more, it takes an average of 18 months to detect and address any fraud issues.
    A proper accounting system (are you starting to see a trend here?), when effectively designed and administered, can significantly reduce or eliminate fraud.

So what’s the answer if your company has grown and is experiencing pressures due to weak or incomplete accounting?  Engaging the right professional is vital.  Interview several prospects.  Choose a professional that has experience with your industry, your company’s size, and the challenges your company faces.

The right professional will be able to look ahead and advise you of issues that may be potential risks in the future.  And, on a more positive note, he or she will also provide the kind of guidance that will help your business grow.

Dedicated to your success,  Dan

Dan Gotte is a CMA, CPA and partner at FUSE Financial Partners. He’s available to help small companies break out of the DIY accounting traps by deploying simple and powerful finance procedures, metrics and reporting.

photo credit: My Tools 5 via photopin (license)

2 Comments
  1. Dan, my friend, a great and straight to the point article. By working with small business owners for the last decade, I’ve grown accustomed to observing DIY accounting (not good AT ALL)… and the strange thing is, most of these business owners do not see anything wrong with it. Sadly, they are mostly concerned with not paying taxes which is not good at all. My message to them in these instances is that not paying taxes is the least of your concerns (taxes are the responsibilities of every law abiding citizen in the US) and by using TurboTax or better yet just taking your receipts and other accounting docs to your tax accountant (“shoebox accounting”) is not the best option for you and your business for the long term. I stress the need to have an accounting system that gives them info to empower strategic management decisions from a proactive and preemptive standpoint. Lastly, I don’t discount the need for tax accountants, but they’re really good at taxes… not so much in planning, creating, implementing, and operating an accounting system the business owner needs to ensure his or her business is optimzing operating cash flow and mitigating business risks where applicable.

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