Opportunities Wilmington Business Owners Will Miss Without Accounting Basics

It’s officially time to get serious about your accounting.

Why? Just take a look around: The consumer price index went up 2.8 percent in February (down from 3 percent in January). So, yes, inflation has mellowed slightly, but cost pressures remain (especially for your morning omelets).

While slower price hikes are good news for your Wilmington business’s budget, prices are not decreasing. And tariffs remain an unknown factor that could also affect you.

Which means you need to be thinking strategically: Where are the prices of critical goods for your business currently resting, and how are you going to handle them?

You aren’t the only one who lets inflation impact your spending – banks usually react by tightening their lending standards or requiring higher interest rates. Which is not ideal for you, if your current business goals involve expansion that you’ll need to take out a loan for.

Plus, if you bump up your prices significantly because of tariffs or inflation, lenders will see your business as higher risk.

So, what can you do?

Hone your business’s accounting. Make sure you’re consistently doing the basics. Truly, intentional accounting is your best move if you want the freedom to take every opportunity that comes your business’s way. 

Here’s what I mean by that…

Opportunities Wilmington Business Owners Will Miss Without Accounting Basics
“The loftier the building, the deeper must the foundation be laid.” – Thomas à Kempis

Here’s the hard truth: You’ll NEVER be able to level up your business with financing or scale it down if you don’t have accounting basics in place. 

Why? Because numbers can’t lie. 

Your cash flow statement, debt-to-income ratio, P&L statements, and all your other accounting records are a direct gauge of the financial health of your business. They’re the proof that someone – whether a buyer or lender – should take a chance on you. 

Does your business’s accounting currently give them reason to?

What they want to see
If you walked into a local New Hanover County lender’s office today and asked for a loan, they’d ask for proof that your company is financially stable. They want to see…

• At least two years of accurate financial data, including profit and loss (P&L) statements, balance sheets, and cash flow statements. 
• Strong cash flow management. If you’re constantly scrambling to cover payroll, missing vendor payments, or overdrawing accounts, lenders will see you as a high-risk borrower.
• Accurate tax filings and no outstanding liabilities. Missed tax payments, IRS penalties, and unfiled returns are all big turnoffs for lenders. 
• Low debt-to-income ratio. Messy accounting equals an unclear debt position (which equals no loan). 

Potential buyers for your business are looking for pretty similar stuff – and if they don’t like what they see, they’ll walk away. Or, they’ll offer you WAY less than your asking price. So, you need to be able to show them…

• Proof that your business is profitable. Incomplete, disorganized, or erroneous financial records don’t inspire confidence.
• Stable or growing revenue trends. Even if you are profitable, bad accounting makes it look like you aren’t. And that lowers your valuation – meaning you could lose out on thousands of dollars in the final sale price.
• Records of liabilities and risks. Buyers need to see a clear picture of your business’s financial commitments, like loans, agreements, and other obligations. If these aren’t well-documented, they’ll consider your business a high-risk investment.
• Financial systems for the buyer to inherit. Your buyer is purchasing your entire business operation. If your accounting processes are nonexistent or outdated (or completely dependent on you personally), it makes your business almost impossible to transition.

Fixer-upper-ing your accounting
If you’ve got a meeting with lenders or buyers coming up (or would like to put one on the calendar this year), here’s what you need to do to get your accounting into shape:

Step 1: Gather all your financial documents.
(Bank statements, credit card statements, invoices, receipts, payroll records, tax documents, loan agreements, leases, contracts, P&L  statements, balance sheets, and cash flow statements.)

Step 2: Pick your method. Cash-basis accounting recognizes income and expenses when money actually moves in or out, while accrual-basis accounting records transactions when they are earned/incurred. (Quick tip: Lenders and buyers prefer businesses that are accrual-based.) 

Step 3: Start recording every transaction.

Step 4: Set up a clear filing system.

Step 5: Clean up your financial statements. Make sure all your revenue and expenses are recorded and categorized correctly on your P&L statement, that your balance sheet lists all your loans, credit lines, and outstanding debt, and that your cash flow statement tracks in detail how cash is moving in and out of your business.

Step 6: Calculate your debt-to-income ratio. Divide your total monthly debt payments by your monthly gross income (you’re aiming for a ratio below 36 percent).

Step 7: Reconcile your accounts regularly to make sure your accounting records match your bank and credit card statements. I recommend doing this monthly (or weekly, if you’re in your industry’s busy season) to catch errors and fraud before they snowball.

 

In all honesty, my best piece of advice here is to invest in a professional accountant. And no, I’m not just saying that because I want to make a dime. The legal liabilities of not having good accounting in your business are huge, not to mention the strategic missteps you’ll likely make. 

Why? Because you’re not an accountant – and that’s okay. You didn’t start your business to become one. So let someone with expertise you can trust handle this for you:
calendly.com/hayescpapllc

 

Here to lighten your load,

Daniel Hayes