The world has had more than its fair share of scandals in over the past few years mainly involving large institutions. They have all been duly charged with heinous crimes such as understating expenses, overstating profits and dishonestly reporting debt.
This is collectively known as creative accounting and it is certainly not confined to big companies. Many small businesses have a tendency to reverse the situation by understating earnings in order to avoid tax.
Commenting, Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners and Business Advisers Irwin Insolvency said, “This is illegal and may well compromise the business’ ability to obtain future financing for growth and development. It is well documented that those businesses turning to their banks in order to finance capital expenditure have in fact been turned down due to past sales performance. It is vitally important for all small businesses to use bone fide accounting practices which involve recording all business receipts, ensuring that only business expenses are included in financial statements and properly accounting for debts incurred.”
Transparency is the simplest way to detract from charges of cooking the books. All business and personal transactions should be kept entirely separately and if personal funds are used, it is wise to ensure that these are well recorded and include receipts.
“In the longer term businesses will find that proper accounting practices and financial planning will prove to be far more beneficial than living with the possibility of being charged with impropriety,” added Mr. Irwin.