Sometimes your business just doesn’t perform as well as you need it to. Spending 15-hour days at trade shows, pulling all-nighters to revamp your market strategy and tweaking your website all weekend don’t always guarantee a profit or cash flow boost.
If you happen to be applying for a loan or line of credit or are in the process of selling your business, a few bad months could mean the difference between loan approval and rejection. When faced with this kind of pressure, some small-business owners look for alternative ways to hit their numbers. Unfortunately, this can lead to trouble.
That’s because “aggressive” accounting is a risky proposition. Unlike sales and marketing—where being aggressive is often rewarded—cooking the books (or even just warming them up a bit) can ruin your business reputation and potentially lead to legal problems.
The sticky part is, while some accounting moves are blatantly wrong, others may not be so obvious to business owners without an accounting or finance degree. In fact, during a due diligence process, many small-business owners are surprised to learn that some of their long-standing “common sense” accounting practices are just plain wrong.
Small business accounting techniques
Here are five small business accounting techniques you may be using that can get you in a mess of trouble:
1. Stretching Out Your Accounts Payable
Accounts payable are liabilities—money that your business owes to suppliers and other companies. As accounts payable balances go up, the net worth of your business goes down.
Let’s say you expect to owe $100,000 to suppliers this month—your balance sheet should reflect that. But if you’re applying for a loan, that additional debt might hurt your chances of being approved. So you call up your suppliers and ask them to hold off on sending invoices for 60 days in exchange for future business. This provides a temporary boost to your balance sheet and fools the bank into thinking your business is worth more than it really is, but that’s not right.
