Most business owners would rather be generating revenue, than crunching numbers. Nonetheless, this unglamorous duty is part of running a business and essential to success.

Unfortunately, keeping tabs on a company’s finances isn’t a simple process. Accounting errors can occur due to poor internal controls, employee fatigue, and other factors. Even small errors can skew accounting and management reports. Plus, these errors can be time-consuming and costly to rectify, and can sometimes hinder company growth.

Here are just a few ways inaccurate accounting can negatively affect your business and what you can do to prevent errors.

Poor Business Decisions

Companies identify Key Performance Indicators to measure their progress. However, they can’t rely on the results if measurements are based on faulty information.

A business may believe they are performing better or worse than they actually are which makes reliable budgeting and forecasting impossible. They could also make unwise business decisions detrimental to the company’s financial well-being.

Inaccurate Financial Worth

A company’s financial reports should offer an accurate overview of financial worth. However, accounting errors create inaccurate reports which can make a business look more or less valuable than they actually are.

When reported profits are too low, the company appears undervalued. When reported profit are too high, the company incurs a higher tax liability than they should. Incorrect classification of an asset or liability can also paint a misleading financial picture.

Poor Cash Flow

Every business needs an accurate picture on how much money is coming in and out of their company. However, inaccuracies in accounts payable or accounts receivable can wreak havoc on cash flow. As a result, a business could struggle to cover expenses or fund new ventures, because their accounting figures don’t reflect actual expenses and revenues.

Increased Risk

Issuing inaccurate financial reports creates uncertainty. Even if the company corrects the error, it can lead to a reputational hit and a lower stock price if they’re a public company. This could also make it harder for a business to obtain capital.

Substantial errors may also violate accepted accounting standards which can trigger audits, fines, interest, taxes, or legal ramifications.

Moving Forward

Effective accounting must be comprehensive, transparent, and accurate. Otherwise, it won’t provide reliable information and could actually pose a serious threat to business strength.

Consistent, timely reconciliation is necessary to provide reliable data. The business can then measure the success of KPIs and identify areas that need improvement. Errors must be minimized and best practices implemented to prevent errors from reoccurring. Fortunately, outsourcing this responsibility to a professional is very worthwhile and affordable.

An accredited CFO can impartially review, detect, and reconcile errors. They review reports, automate processes, and standardize procedures for peak efficiency.

If you’re interested in an outsourced, professional CFO, contact us for a free consultation. We have the in-depth knowledge and expertise you need to steer your company towards a brighter future.

Tap into our expert financial advice, without paying for a full-time employee. Our services scale up with you as your business grows.