You’ve got good credit, your accountant says you’re profitable, and you even paid taxes last year. So why did your bank turn down your business loan application? While your banker might give you a reason, it may not be the underlying issue.
Let’s be honest: most small businesses have, at best, marginal bookkeeping, which leads to equally marginal financial statements. So why does this matter?
Your financial statements are the language your business speaks to the outside world. Imagine hiring for a crucial role. An applicant submits a resume with poor formatting, misspellings, and ambiguous experience. Would you seriously consider them? It’s “just a piece of paper,” right?
Wrong. It’s a direct reflection of their ability to perform, their effort, and how they handle things. And guess what? Banks and other financial partners view your financial statements in the exact same way. When you’re asking them to lend money to your business, messy financials raise serious questions about your creditworthiness.
Beyond lenders, you’ll likely want to exit your business someday, meaning sell it. You’re working hard to build something valuable. One of the first things a potential buyer will request is your financial statements. What happens if you hand them junk? I can tell you what happens: we once walked away from acquiring a company with $20 million in revenue because of the poor quality of their financials. We didn’t even get past first base.
“Okay,” you might say, “I don’t plan to borrow money and I’ll never sell. Why do I need quality financial statements?”
FOR MAKING MANAGEMENT DECISIONS! How else do you truly know what’s happening with your business? Your financial statements are simply the financial report card of your business’s performance.
You don’t have to have quality financial statements, but don’t get frustrated when your bank turns you down or your tax accountant puts you on extension.