We sometimes shoot ourselves in the foot with numbers. The trick is to be consistent with the knowledge your numbers provide.
I recently met an entrepreneur at a coffee shop for lunch, and he told a story that annoyed me to no end. It seemed the entrepreneur had taken out a $350,000 loan at a 36 percent interest rate.
I was aghast that online lenders had taken advantage of him, especially since he should have been able to borrow about three times as much money ($1 million) at a third of the price (12 percent). The difference in the loans was a yawning chasm.
Upon closer inspection...
We began working with the entrepreneur, and it didn't take long to see there was a serious problem: The guy's bookkeeping and accounting were a mess. Not only was the company months behind on its monthly financial reports, but there's no way of telling if the numbers were anywhere close to accurate.
This is a $12 million health and human services company out of New York we're talking about that literally has no controls in place. There's no way we can take this company to a lender because we'd be laughed out of the building. In other words, no financial relief is forthcoming; you can probably make a good argument that the online lender was taking an unwarranted risk by granting the loan.
I liken it to attending a professional basketball game and noting that LeBron James has his shoes untied. The lack of professionalism is staggering.
To make matters worse, the entrepreneur really didn't seem all that interested in fixing the problems.
Paging Mr. Clean
It doesn't take a Warren Buffett to realize our example entrepreneur is shooting himself in the foot. Perhaps he succeeds in spite of himself, but even so, there's no way he's coming even remotely close to maximizing his business.
My advice to you is simple: Do what it takes to have your bookkeeping and accounting in pristine shape. Even if money is tight, don't scrimp in this department--find somewhere else to make cuts.
The old saying that you have to spend money to make money rings true here. Your finances are the lifeblood of your business. Treat them well.
Think about a car with a shiny paint job, clean interior, and all the bells and whistles. Looks good, huh?
Well, none of that means anything if you haven't changed the oil for 40,000 miles, and the engine is about to seize up on you.
The good news is that any reputable accounting firm can help you get back on track. It may be a painful process--and you're going to have to follow their demands to a T--but clean accounting is the path to reasonably priced loans, better offers from would-be investors, and reduced worries about possibly being audited.
Peace of mind is worth that price.