The Importance of Keeping Your Financials Clean

If your company is positioned to leap into the next level, and professional growth and expansion is what you are now facing, accounting and financial accuracy takes on an even more critical role. Clean and detailed financials will help to:

• Uphold investor faith
• Know exactly how much money you possess, to allocate to different ventures
• Possess spotless reports for taxation purposes
• Know whether you can afford a particular investment at a given point in time, or not

Maintaining clean books should be an innate part of your business practices.  For most small businesses, this translates into taking time off from the daily routine of attending meetings and working on client deliverables, in order to sit down to assess where they are financially and focus on bookkeeping.

However, unless you truly understand the nuances of accounting and finances, this may best be left to an expert.  Working with an expert ensures that the entries are completed in a disciplined manner.  As your business grows, tax preparations and filings may become complicated. Unless you work with an expert, you will be forced to take time out of your client work to perform these functions.  If you’re “self-taught” as opposed to having undergone professional training in financial management, these tasks could also take longer to complete than if they were given to an expert.

The Hewlett Packard-Autonomy Controversy

You also need to keep your books clean to avoid IRS-related scrutiny. Corporate giant Hewlett Packard (HP) was in the news a while back for its purchase of Autonomy, a software company. HP claimed an $8.8 billion dollar write-down because of the deal, which cost the company $11.1 billion. A write-down is when an asset is deliberately shown as decreased in value. This is done when the asset has overshot its market value or is overvalued, compared to prevailing market rates. Write-downs can reduce a company’s tax burden.  HP also claimed that it was accounting errors that resulted in $5 billion of the write down. The founder of Autonomy stated that HP was aware of some of their accounting practices, but he also believes the controversy lies in different accounting standards adhered to in the US versus those in other countries.

Trust and transparency

The HP/Autonomy example supports the point about the necessity for accuracy and transparency in financials. Small and mid-sized businesses depend on goodwill and client trust. Regardless of differences in accounting standards or other technical industry-specific requirements, clean finances are an essential ingredient to any size business. Most small or mid-sized businesses cannot afford such controversies, or they would simply fall out of existence!

As a business owner, if your company’s goal is growth, clean accounting books might help propel you to the top!

Written by

Analytix Editorial Team