If you need funding to take your business to the next level, it's vital that you button up your financials at this level first. Make sure your records are organized and complete to help the process proceed smoothly.
Here are some of the common issues that can jeopardize a funding round.
- Misstated revenues: Deliberately misstating revenues — such as recording sales before you've received payment — constitutes fraud. And even if you misstate revenues through ignorance rather than by design, prospective investors will take an exceedingly dim view of it.
- Misclassified expenses:
If you run a business, you might be tempted to use the company's credit card or checking account to purchase a personal item, with the idea that you'll reimburse the company later. But if even one of those expenses ends up being charged to the company, that undermines the integrity of your entire financial history.
- Unreconciled accounts:
If your business makes a lot of transactions, it's easy to wind up with unreconciled accounts on occasion. Trying to resolve them can be frustrating and a drain on your time. But just ignoring them and hoping they go away is not an option if you're serious about obtaining financing. Think of it this way: Investors and financial institutions are loath to provide additional funding to companies that can't fully account for the funds they already have. (Fortunately, bookkeeping software, such as QuickBooks, and having the assistance of bookkeeping professionals, can help you get to the bottom of unreconciled accounts.)
- Improperly applied COGS: It's critical to ensure that your cost of goods sold (COGS) is properly applied. If you don't properly account for the money you spent to deliver the product you sell — including all raw materials and labor but not sales and distribution costs — you won't be able to determine your company's actual gross margin. So often these costs are applied improperly and that's the kind of information prospective investors must have.
- Inventory unaccounted for: This one seems rather obvious. If you have purchased or manufactured goods or materials but have lost track of them, that doesn't reflect very well on your ability to manage your company's assets. Failing to monitor inventory can have disastrous consequences.
Take Your Blinders Off
Chances are, you started your business not because you grasp all the intricacies of bookkeeping but because you believe in the product or service that you offer. And that's fine. But unless you've found a professional who does grasp the intricacies of bookkeeping, you might not get the money you need to get your product or service to market.