An Ounce of Prevention is Worth a Pound of Cure

April 27, 2015 at 11:11 am Leave a comment

Benjamin Franklin is credited with this saying in 1735, and with respect to our domain, which is providing finance and accounting guidance to early stage companies, it is a particularly appropriate adage. And it is one we are reminded of on an almost daily basis.

When accounting and financials become critical
The Brenner Group provides outsourced finance and accounting help to growth companies. We get several calls a month from CEOs whose private company is scaling and is seeking bank financing, attracting first-time interest from an institutional investor(s), or in discussions with a major M&A acquirer. However, their poor accounting infrastructure and financial reporting has turned off the suitors. We get the “hair on fire” call to provide GAAP-compliant financials ASAP so the company can engage with its interested parties. Not only that, we are often asked that the “clean up” be completed in a manner of days and enable the company to complete a clean first-time audit.

While we are happy to engage in such assignments, and routinely do, needless to say it is not an overnight exercise to take a boxful (could be physical or cloud-based) of bank statements and create meaningful, accurate GAAP-compliant financials that would withstand audit scrutiny. Most importantly, to Ben Franklin’s point above, our message to CEOs of private growth companies is that it is much more expensive and painful to produce accurate financials later than to make it a normal part of business processes along the way.

Delaying good accounting is a big mistake
The cost to have a qualified accounting person set up and maintain accounting books and records as you grow is a fraction of the cost of a downstream “clean up” after 1 or 2 years of neglect. And the more significant and tragic cost is the valuation discount the company invariably undergoes in the eyes of the investor or the buyer.

We urge CEOs to take Ben’s words to heart and get proper back-office help from Day 1 from a qualified partner. You will maximize growth options and exit value, and will sleep better at night.

J. Weston (Wes) Rose is Senior Vice president of The Brenner Group, one of Silicon Valley’s premier professional services firms. Wes has enjoyed an extensive career as a C-level operating executive with multiple venture capital backed technology companies and now runs the firm’s interim management and restructuring practices, and corporate marketing.
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Entry filed under: Financial Advisory, Interim Management, Restructurings, Valuations.

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