Case Studies

Business owners don’t alwaysrecognize potential issuesuntil they become real problems

By the time those issues are discovered, drastic actions are required to remedy them. That was the case when Craig was approached by a friend who, bluntly and truthfully told him, “I have no idea how my business is doing.”

A surface look at his financials didn’t present a clear answer. He was billing plenty, but there just wasn’t much money left in the account at the end of each month. He couldn’t see where the money was going. So, Craig dug deeper. He went through all of their financials for the past two years and found a few areas of concern. The biggest problems were:

  • All personal expenses were being run through the company.
  • Net wages were being recorded as gross salary (causing a greater tax expense).
  • The company was significantly overstaffed.
  • There were no legal documents.

Complicating the issue was that the client actually had an in-house accountant, and The Bookkeeper was only working on this issue in a consulting role. A change was clearly necessary but, like many changes, that didn’t mean it would be easy. At the next meeting, Craig brought all of these issues to the client’s attention. From there, they devised a multi-step plan to get the company in shape.

  • First, they took all personal expenses out of the company, so they could get a more accurate picture of its financial status.
  • Second, Craig went back and corrected the two years’ worth of payroll entries in the in-house accountant had entered incorrectly.
  • Third, the client reduced surplus staff (including the accountant).

In the end, the client ended up hiring us for his bookkeeping and CFO work (for a fraction of what the in-house accountant was being paid). There was a great deal of work up-front in cleaning up his financials, but ever since the “makeover”, records have been kept accurate and up-to-date, with no issues or surprises.

Here have been the effects of this change:

  • All payroll expenses are now accurate.
  • The company is staffed at an appropriate level.
  • Monthly expenses have been reduced by $4,000.

Most importantly, the client has peace of mind that he knows exactly how well his business is doing, and no new problems are sneaking up on him.

“Wins” can come at unexpected moments

It was discovered during a casual lunch meeting that a friend had put some cash into his business. It had been recorded as paid-in capital. It was pointed out to him that he would have significant less tax liability recording it as a loan from the owner.

This might seem as a minor little accounting quibble, but changing that one entry saved him over $13,500.

“Prettying up” financials canlead to unexpected results

We were once approached by someone with a small project. He was just interested in us “prettying up” his financials in preparation of selling his company. He was concerned that his business was not paying him the money he wanted to make, and had just received a new job offer for $60,000.

When pressed about it, he admitted that he wasn’t terribly thrilled about this new job opportunity, but felt that he had to take it as, in his perspective, his only income from his current business was a $45,000 draw.

But when The Bookkeeper looked at his financials, we saw:

  • Family’s health insurance: $9,600
  • Automotive payment: $9,120
  • Auto, gas, insurance & repairs: $8,450
  • Meals: $10,200
  • Vacations: $7,700

When added to his draw, this amounted to a total monetary benefit $90,070. This equates to $116,500 in total equivalent taxable income, instead of the $45,000 the client perceived. When we met back with the client and illustrated to him how much he was actually making, he turned down the job offer, kept his business, and remained his own boss.