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15760 Ventura Blvd, Suite 610 Encino, CA 91436
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A Business Turn Around without Good Financial Reports Is Like Pumpkin Pie without Whip Cream

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The creditors were calling daily. The landlord was to the point of threats. The employees were worried if their next check would be good. Everyone said that the underlying business was good; margins within industry standards, rent reasonable, and orders coming in every day. Sally and Ted had owned the wholesale company for eight years. After a few struggles in the early years they had created a company that was paying them a nice income and that was growing nicely. What had gone wrong?

Sally reached out to Larry, a friend who had been successful helping companies turn around in some pretty dire situations. Larry set a meeting and asked both partners to be present, and to bring the last three years of income statements and balance sheets, an accounts receivable aging, accounts payable aging and a sales analysis.

Sally and Ted called in their bookkeeper. She did double duty as bookkeeper and general office manager. She said she would send over the reports. She also gave them the same warning she had repeated over and over. These reports are only as good as the information you are supplying me. Incorrect or missing inputs of products or costs, invoicing mistakes, inventory shrinkage, missing supplier invoices, and more could make these reports of little or no value to the consultant.

At the meeting, Larry studied the documents while Sally and Ted sat anxiously, feeling almost like errant school children. Finally, Larry looked up and said what he had said to so many other small business owners: “We can save your company, but your financial foundation is badly broken. You will need to work very hard to set this ship straight.”

Here is what Larry found in those reports:

• Because there were missing supplier invoices and because many products had been put in the computer at -0- cost, the margins were vastly overstated. The company appeared to be making a profit, but when the margins were corrected, they would be barely breaking even.
• Many invoices for overhead items were sitting on Ted’s desk. When these were put back into the proper reporting period, the profits turned to losses.
• Collections of past due invoices were the last thing on anybody’s mind. The result was that many invoices were likely uncollectable. This meant assets were overstated by many thousands of dollars.
• The inventory figure on the books was not close to reality. Some items had been stolen, were in disrepair, or were outdated, resulting in more thousands of dollars that had to be written off.
And this was just the beginning. More issues showed up in payroll. Incorrect reporting, and quarterly payments not made were going to cost the company plenty in late penalties. No one paid any attention to 1099 reporting, so no reporting had ever been done.

Because the company appeared profitable, Ted and Sally had not paid much attention to overhead. Staffing was more than was needed and money spent on non-essentials was common.

But Larry had good news, too. With proper management the company would return to real profits. Moreover there was plenty of cash in inventory and receivables to jumpstart the cash flow.

The inventory was at least double what was needed to run the business. A quick sale of slow moving merchandise and a freeze on purchasing would result in substantial funds for paying unhappy creditors.

Past due invoices provided another quick revenue source. The first week was spent just asking for payment. The second week incentives were offered. The third week the accounts were divided into three levels of collection effort: Collectable, uncertain, and send to collections. Collection efforts brought in needed cash, and these funds were used to pay the landlord and build up the cash balance in the bank.

Sally and Ted reduced their take home to the bare minimum for six months. The rest of the staff was evaluated with a goal of reducing payroll overhead by 20%.

After six months of hard work Larry’s plan was working perfectly. Systems had been created to make certain that all transactions were accounted for, and that there were checks in place to insure that they were done correctly.

The story of Sally and Ted is repeated in most small businesses. Some companies go out of business needlessly because they don’t have the systems in place to identify the reasons why they are failing. Other companies go along for years making far less profit than they might have, because nobody is reading the financials or making adjustments based on the issues they find.

If you are like Sally and Ted or think you might be, a quality outside bookkeeper and/or accountant like ATPP could be your solution. You would be surprised at how little it will cost to have outstanding reports prepared in a timely fashion. ATPP can even help you set up your systems, including Quicken. Call today for a quote at