When the Balance Sheet Hits the Fan - This Ain't Our First Rodeo!
Did the horse you came in on turn out to be a bronco? Owning your own business can seem easy during the honeymoon period or a slow season, but watch out for the unexpected. There are several types of prospects that come through our doors looking for help with their finances.
If you are thinking of getting a loan or line of credit at a bank or have a potential buyer interested in your business, the first thing they want to see is your Balance sheet. You will need a “Balance Sheet Clean-up.”
When it comes to balance sheet messes, you often cannot fix it without causing other problems in prior periods. When you try to journal something out in a prior year –while it might make you current year financials OK – it will often “change” what was in the past. You must be careful not to interfere with records that you have already filed with the IRS.
Here are some steps we recommend if you are trying to get a current balance sheet:
1) Figure out what your Assets are and what they are worth: Have you been recording depreciation or do you just leave that up to your accountant? Have you been entering your new Assets on the balance sheet?
2) Figure out your REAL Receivables: Run a receivables report and figure out if everything on there is REAL. If it’s not, then you will need to clean up each account until it is correct.
3) Figure out your Inventory: Is it all saleable? Conduct a physical inventory count and make adjustments for “disappeared” or damaged items.
4) Bank Accounts: Make sure they are all reconciled and up-to-date and that the amount ties to your bank statements.
5) Credit cards and loans: Get a current balance and reconcile them until your bookkeeping balance equals your balance on your statements. Don’t forget to figure in any interest.
6) If you have loans to shareholders or loans to employees: Try to clean these up before you go to the bank or a buyer.
7) Did you make up a “clearing” account or a petty cash account to put things that didn’t fit anywhere? Those have got to go!
8) Equity: Check to see that your draws and equity into the company are properly accounted for. Check retained earnings for any “dumping” that you may have put in there.
When new prospects consult with us, we often hear, "You're the only ones who are patient about putting this in terms I understand." This is what we're here for.
We’ll sit down with you, go over what happened, and come up with a solution to remedy the situation without messing up the prior year’s bookkeeping. We will put your business’ Balance Sheet in the best light! And when we're finished, you won't have to watch where you step!
Lynn Talbott, MBA, PHR, has over 20 years’ experience consulting with entrepreneurs of small to mid-sized businesses in the HR and office management capacity. Her specialty is Office/Human Resource Manager coaching and training and finding practical solutions for bookkeeping errors and HR blunders. Lynn has helped manage over 50 business start-ups and many of those companies continue to rely on her expertise today as they continue to grow.