Back in 2005, when I was running one of my first real businesses—meaning, it had daily customers, daily banking, and constant transactions—I hired a consultant to help me use Simply Accounting for the first time. She gave me one of the best pieces of advice I’ve ever received about bookkeeping.
She pulled out two stamps—one that said “Posted” and another that said “Paid”—and told me to go get my own. Her method was simple:
When a bill comes in, enter it into the system as unpaid and stamp it “Posted.”
When you later paid the bill, update the record in Simply Accounting and stamp the paper invoice “Paid,” with the date.
Being clever (but not yet wise), I asked, Why not just pay the bill and enter it once it’s done? Her answer:
If you skip the first step, those payables won’t show on your balance sheet. You’ll think you have more cash than you actually do—and make decisions based on inaccurate financials.
Smart, right?
Fast forward to 2016...
The Bookkeeping Error That Cost Tens of Thousands
I had a client who’d been running a successful business for decades and was now ready to sell. Like many entrepreneurs, she focused on operations and left the books to a bookkeeper. She submitted paid invoices every few weeks, but the bookkeeper never asked for unpaid invoices sitting on her desk. Year after year, these missing payables created a compounding problem.
When I reviewed her balance sheet, it showed only $5,000 in accounts payable. But in reality, there were $45,000 in outstanding liabilities—mainly in the form of gift certificates and other pre-sales.
That’s a $40,000 mistake that only came to light during the sale process.
Let me break it down.
Sample Balance Sheet Before Discovery:
Assets |
| Liabilities + Equity |
|
Cash | $40,000 | Loan | $10,000 |
Inventory | $60,000 | Accounts Payable | $5,000 |
|
| Equity (calculated) | $85,000 |
This looked solid. But once the true payables of $45,000 were discovered:
Updated Balance Sheet After Discovery:
Assets |
| Liabilities + Equity |
|
Cash | $40,000 | Loan | $10,000 |
Inventory | $60,000 | Accounts Payable | $45,000 |
|
| Equity (actual) | $45,000 |
Why This Matters in an Asset Sale
In an asset sale, the buyer purchases the business’s assets—typically free and clear. That means the seller is responsible for satisfying all liabilities. So while the buyer wasn’t harmed (they still got the same inventory and customer base), the seller walked away with $40,000 less than expected.
All because of an error that had snowballed for years.
Key Lesson: Know Your Numbers
Ultimately, it’s your responsibility as a business owner to understand your financials. When you get your financial statements—monthly, quarterly, or annually—ask questions:
Do these sales figures match what I expect?
Are expenses and payables accurate?
Does the inventory value make sense?
Are there outstanding obligations not reflected here?
If my client had asked why her payables showed only $5,000, she would have quickly realized something was off. And we could have fixed it years earlier.
Don’t Let This Happen to You
If you're planning to sell your business in the next few years, start reviewing your numbers today. Sit down with your accountant or an advisor, and go line by line through your financial statements. If anything doesn’t make sense—ask.
Also, check out my book,
“How to Sell My Own Business” — an Amazon bestseller that lays out the exact steps for selling your company without hiring a broker. https://a.co/d/bbFqBpE
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