Accounting... Why Are We Doing This?

A client asked a sincere question this past week as we finalized his tax return, and I told them about some issues I saw in his books for his businesses that he needed to correct. 

He said accounting has caused him a huge headache over the past couple of years (he’s a REI with a flipping/wholesale business and a slew of rentals), and what’s even the point of keeping the books except to prepare a tax return?

The main reason why business owners need real-time data from their financials is so they can use that information to make immediate, strategic decisions in their business. 

For this individual, I told them this might sound like:

• Comparing budgeted to actuals on flips to see profitability as the project progresses.

• Know how leveraged you are on properties you’re thinking about refiling or making improvements on. 

• Understand ongoing costs (cost of goods sold and overhead) as a % of gross revenue 

• Use data and understand tax position throughout the year & make decisions accordingly.

With another client I recently took on, once we got their books up to date, we could easily see one of their divisions was sucking all the cash from the profitable division, and that was due to a bloated payroll, so immediate adjustments could be made to stop the bleeding. 

“Every decision you make in a business will always tie back to the finances, so it’s imperative you allow the finances to give you the feedback you need from those decisions. “   -HB

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