Searching for Capital

A broker assesses the small-business lending market.

I recently had to place a small-business owner in a 27-percent annual-percentage rate cash-advance loan. The sad thing about his situation is that he might well have been eligible for a six-percent bank loan. What stood in his way was that he was six months behind in his bookkeeping, and it would take weeks for him to get his books in order.

Unfortunately, he needed the money right away. And there isn’t a reasonably priced lender out there who will lend to anyone with such outdated financials. It’s easy to look at this situation and think that this owner got what he deserved. But the reality is that it’s easy to slip on keeping up the books. I am guilty of it sometimes, too. When I get lazy, I keep an eye on the bank statement to make sure cash is coming out, and I save the bookkeeping for later.

I was reflecting on this recently, as I watched my 12-year-old son play basketball. While I confess to not understanding much about the game, I love the intensity and I love watching how he has grown and changed as a player over the years. And I see similarities between being a basketball player and an entrepreneur.

Perhaps most striking is how quickly you have to flip between playing offense and playing defense. At any moment, everything can change. In basketball, you wouldn’t try to get on the court if your shoes were untied. And in business, you really can’t play the game unless you have a core understanding of your financials and cash flow. Unfortunately, many small-business owners are so focused on their trade that they don’t give sufficient time or attention to their books.

And then the unexpected happens. Suddenly, you are playing defense, and you need those financial statements. If you are unprepared, it’s as bad as being on the basketball court with untied shoes. Every day, at my loan brokerage, we get phone calls from business owners who are dealing with something new and want to look to a loan for help. The state of their financial statements will often dictate what options are available and what rate they will have to pay.

It’s easy to pin the blame for the lack of access to credit on unreasonable bankers. And while I believe the banks share responsibility for the chaos of the last few years, some of that responsibility falls on the shoulders of entrepreneurs as well. Would you lend your own money to a business that had no real sense of where it stood financially? I certainly would not.

The issue of outdated bookkeeping is particularly important at this time of year, when we see many clients who are in the process of compiling their receipts and bank statements for the previous year so their accountants can prepare their tax returns. I recently met with an accountant, Andrew Berg, whose practice is small-business focused and who demands accountability from his clients.

“We require all clients to either have a good internal set of books or allow us to spend the time to get them clean,” Mr. Berg said. “We would not be willing to continue a relationship where the books aren’t progressing toward being clean. The only way to know for sure how the business is doing, and properly advise the client, is to have clean records with accurate information.”

A year ago, I hired a service to do a monthly reconciliation of my QuickBooks Online account. It’s not perfect, but I knew it would at least provide a check against my own chaotic, entrepreneurial mind.

How do you manage your books? How do you ensure that they are reasonably up to date and in-order? Have you paid a price when they were not?

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

Article source: http://boss.blogs.nytimes.com/2013/01/30/the-price-of-bad-bookkeeping/?partner=rss&emc=rss