Misinterpreting financials
It is common among business owners to have improperly organized financial statements or not know how to read them. This leads to poor financial management decisions despite having on-staff bookkeepers, accountants, and third-party CPAs.
In this situation, the owner thought his gross profit was 40%, half of which was net profit, for 20%. His equipment expenditures were made under the assumption of a 20% net profit when his actual situation showed that he was lucky to net 10%.
He was broke due to the burden of millions in equipment loans.
Because the business owner’s CPA firm and bookkeeper didn’t maintain accurate financials, he didn’t realize the business’s cash flow couldn’t cover.the loan payments. He thought he was making money when he was not.
The Daaxit solution
First and foremost, Daaxit froze future asset purchases to get a grasp on the numbers and refinanced the company to keep it sustainable. Stepping up to the challenge, Daaxit also negotiated with creditors to lower the interest rate, increase the line of credit, and create the cushion needed to catch up cash flow.
More time to succeed
Reducing rates, refinancing, and negotiating with creditors bought time to adjust the company’s course.
After reworking the financials, some work on growing revenue and increasing profits resulted in a 35% gross profit and 15% net income.
How did a CPA and bookkeeper go so wrong?
CPA firms specialize in tax issues and not necessarily business operations and finance. They do taxes and base financials on the tax implications. The lack of operational experience means they can’t enter a business like a CFO and advise an owner of what is happening monthly. Additionally, CPA firms don’t check in monthly on the company’s financials like Daaxit.
Bookkeepers don’t have CFO skills, and entering transactions and interpreting them are very different. They don’t know the effect of their entries on the financials, and any mistake can result in a very adverse impact.
A fractional CFO makes all the difference due to knowing what the numbers work, how they should look, and what matters to the industry.
