What does it take to establish credibility for your business with customers, prospects, and investors? In my blog post on the topic last month, I offered seven strategies anyone can use to instantly improve their reputation as a trustworthy, transparent, and professional leader.
One subject I didn’t mention? Money.
That’s because financial credibility merits its own blog post. The relationship between accounting and trust is as old as the concept of trade. Particularly in regard to borrowing and lending, a person’s integrity could make or break a transaction. If you consider trust on the scale of exchange across countries and global markets, the role of credibility in modern business relationships becomes even more critical.
These days, good accounting practices remain an essential part of any individual’s or organization’s reputation as a worthwhile business partner, and here are seven reasons why:
Accuracy and Timeliness
Good accounting is consistently accurate and punctual. Without it, money transforms into an emotional issue, as disorganization, mistakes, and lateness breed distrust. Others may start to question your motives while waiting to get paid, or learn to take advantage of you when you take three months to submit an invoice.
When you can settle bills, collect payments, present financial reports, and explain every expense on time and without errors, you demonstrate your expectations and show that you value honesty and fair intentions. A sound accounting system also runs on its own, alleviating the mental burden of constantly calculating costs and profits, and keeping your mind on what matters: running your business.
Bookkeeping = Record Keeping
One of the best ways to assess a potential business partner is to study their history. If you don’t have access to clear financial records, you’ll have a hard time convincing anyone to work with you. Regulatory agencies like the IRS also require comprehensive records during audits and investigations.
Meticulous bookkeeping proves that you’re not trying to swindle your prospects or the government. Moreover, it shows that you believe financial performance matters. Whether you’re pitching an investor, applying for a loan, or communicating with your stakeholders, your records are the supporting evidence for your business’s story. Without those records, you’re at best an unreliable narrator, and possibly even a criminal.
To continue the metaphor above, detail is the heart and soul of narrative. Accounting unearths useful, measurable data you can use to plot trends and gain insight into your organization’s value centers. Consider how much you know about your top employees, vendors, and clients and customers: Which individuals are crucial to the ongoing success of your business? What percentage of revenue do they represent?
Or, to put it another way: Would you trust a CEO who had no idea where their earnings were coming from? Accounting data, along with the corresponding financial analysis, equip leaders with the intelligence to make and justify decisions.
Psst! We’ve identified the 7 accounting equations that provide the most value for business owners.
Forecasting and Predictability
Accounting also helps leaders formulate decisions through financial forecasting. Like weather forecasters, executives are judged by their ability to predict future outcomes with at least a semblance of precision. Robust financial data is an indispensable barometer; without it, there’s no sufficient way—besides a general “gut” feeling—to chart your business’s next steps, compare one operating period against another, or determine whether your team reached or exceeded their targets.
Forecasts also help you set budgets, giving you a framework with which to control costs—not to mention keeping your team employed. Your credibility to outsiders arises from your team’s confidence in you, and the only way to obtain that confidence is to earn it by delivering on your promises.
When money moves as fast as the speed of light, accounting professionals need to harness the newest advances in financial technology (also known as FinTech) or, at minimum, be aware of them. A technologically-savvy accounting department is effective in a practical sense—it makes transactions happen more quickly and securely—and is attractive to others outside your organization, especially the millennial crowd.
When their financial services provider combines technology with a personalized service component (hint, hint), business leaders don’t have to worry about an accounting departments falling behind. You can’t access that kind of confidence any other way.
There’s nothing like a legal snafu to totally destroy your credibility. Accountants are bound to a set of compliance rules, also known as the generally accepted accounting principles (or GAAP for short). These standards are set by legislatures and enforced by agencies such as the Securities Exchange Commission and the Consumer Financial Protection Bureau. When a company’s financial department fails to comply with these bodies, the ensuing investigations and legal battles reflect poorly... primarily on the company’s leadership.
By contrast, a company with a long and documented history of compliance often stands out within its industry, proving wise judgement through action (or inaction, as the case may be). This consideration certainly holds true for companies entering into a merger or acquisition—events that are heavily regulated and predicated on the credibility of founders and executives.
Is GAAP accounting right for your business? Here are 5 reasons to consider GAAP over cash.
Finally, good accounting practices incorporate security measures to safeguard everyone’s sensitive financial information. We live in an era when cyberattacks are at an all-time high, and corporations as big as Target, Sony, and Anthem have each reported massive breaches of customer information: names, social security numbers, credit and debit card numbers, and bank account credentials.
While accounting in a general sense is never invulnerable, a professional who knows what they’re doing—and, again, keeps up with technology and abides by their regulatory responsibilities—can help you recover from a disaster, if not avoid it, through financial protection methods specific to their discipline. If your business can deliver peace of mind to each person it works with, you will demonstrate that you have everyone’s best interests in mind and will win universal trust as a result.
Building credibility while building a business is no easy feat. Why stake your credibility on someone who hasn’t earned your own trust? Learn what we’ve done to ensure businesses in the midst of growth can put their faith in inDinero.