I own my business and did most the accounting myself
using Quickbooks. I’ve never had a proper audit but I file and pay my taxes on
time. I keep most of my receipts but
sometimes when I was paid in cash, I just put the money in my pocket. I wasn’t
taking a big salary from the business, so I thought this would be okay.
As sales increased, I
needed more money to grow. I went to the bank and they went through my accounts
and tax filings. They said that I was not making enough for them to give me a $100k
line of credit. I told them about taking money out of the business, but I still
had to agree to put my house up for collateral to get the line of credit.
Then my product featured
in a national paper and later in a nationwide TV program. Sales immediately increased and three investors approached me. They
all wanted to do due diligence. I
thought I knew what due diligence meant, but I was shocked by how much
information and detail they wanted.
They went through three
years of accounts and had five pages of questions; I couldn’t answer most of
them. They tried to reconcile our bank
statements, accounts, and tax filings and couldn’t do it. They each concluded
that we were overstating our margins and profits. I then explained how much cash I was taking out of the business.
Two investors dropped out
because it was taking so much time. The remaining one had their own auditors
rework the accounts. They offered to
make an investment at incredibly unfavorable terms payable in tranches over two
years. I had choice but to accept their offer. I wish I had good accounting in
place from the start.