Amy Giggey  ·  January 14, 2015  ·  1.6 min

The most common perspective of not investing appropriately in accounting & finance is that the management team just will not have the information that they need to run the business efficiently and effectively.  Yet, there are many examples in which the lack of focus around accounting/finance can result in much more costly problems.  During 2014, AVL advised a few companies in which their under-investment in accounting/finance directly undermined the progress of business growth.   Below are three scenarios that we have, unfortunately, run across too many times.

Company A was unable to generate timely or accurate financial statements for commercial lenders despite its steady growth and positive cash flow.  As a result, they needed to factor their receivables at an effective interest rate of over 20%.  The cost of factoring compared to a commercial loan is costing the business over $400K per year in interest and fees, which tempered its growth.

Company B did not have GAAP-based, audited financial statements and had not been building a relationship with a bank/lending source.  When Company B had the opportunity to acquire a strategic target, it was not able to move fast enough, because they could not assemble the financing in a timely basis.  Company B’s largest competitor came in and acquired the target company.

Company C did not have strong financial reporting or visibility into its cash flow and did not recognize that its accounts receivable were slowly slipping out of control.  They only recognized the problem once it became a more serious cash crisis, but by then it was too late and they defaulted on bank covenants and created a business crisis.

The real “costs” of these examples are hard to measure in total, but they are all very disruptive and expensive.  At AVL we strive to take this risk off the table as we work with our clients to ensure they have accounting control and visibility of their financials.