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How Inaccurate Financial Statements Can Lead to Company Overspending

Author : Bill Gerber
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Understanding financial statements is key to the success of any business. Without a qualified team of accountants at your disposal to ensure that financial statements are accurately prepared, serious overspending mistakes can occur, jeopardizing a company’s very survival or creating a loss of shareholder confidence. For this reason, more and more companies are embracing finance accounting outsourcing as one of the essential tools to survival in an increasingly unstable economic climate.

 

How can inaccurate financial statements hurt a company’s viability? There are actually two ways this can happen: through inadvertent overspending that comes from over calculating profits and under calculating spending.

 

Over Calculating Profits

There’s a delicate balance that takes place on constant basis when it comes to preparing your company’s financial statements. If a bookkeeper or accountant makes mistakes and over calculates company profits, this can give company decision makers the impression that they’ve got plenty of money to spend for expansion. The bitter pill is swallowed when they come to discover later on that their miscalculations led them to spend money they didn’t have.

 

Under Calculating Spending

It’s as simple as grade school math to envision just how under calculating company spending can lead to potential financial ruin. If a company thinks it’s spent a lot less money than it actually has, this becomes the proverbial green light to eat into the budget for necessary renovations, improvements in technology, or investment in expansion.

 

Although you wouldn’t think that a professional with a degree in accounting could have troubleunderstanding financial statements, it’s something that happens everywhere, every day. One of the few sure-fire ways of avoiding this dangerous pitfall is by outsourcing bookkeeping and accounting needs to a third party that’s experienced enough not to make these kinds of mistakes, and that has controls in place to prevent such mistakes from ever taking place. In this way, finance accounting outsourcing can act as the Kevlar shield that keeps a company safe from epic oversights that could jeopardize its existence.

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