Our financial records show great paper profits, but our inventory management and cost of goods sold are tracked on messy spreadsheets that do not sync with our general ledger. How do we clean up our cost accounting on our exit runway so we do not fail the quality of earnings audit?

Question

Tyler Smith · Accepted Answer

A quality of earnings audit is designed to find discrepancies between what your spreadsheet reports claim and what actually happens to your cash. If your inventory tracking and cost of goods sold are not integrated with your general ledger, a buyer's forensic accountants will flag this as a major risk. They will assume your margins are overstated and adjust your valuation downward. You must clean up your cost accounting before you go to market. This starts by putting the right person in your finance seat on your Accountability Chart. If your current bookkeeper does not have the capacity to handle institutional-grade cost accounting, you must upgrade that seat. Set a quarterly Rock to integrate your inventory tracking system with your general ledger. Eliminate the manual spreadsheets and automate the flow of your cost data. This ensures your margins are calculated consistently and transparently. Use your Level 10 Meetings to review your financial metrics weekly. By tracking these numbers consistently, you ensure that any accounting errors are identified and corrected immediately. Presenting audited, integrated financial statements to a buyer proves that your margins are accurate, giving them the confidence to pay top dollar for your business.