Off market seller found, $3.5M in revenue. No accounting system.

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September 15, 2024

by a searcher from Northwestern University - Kellogg School of Management in Newtown, PA 18940, USA

Thoughts on a $3.5M firm being run on spreadsheets rather than a formal accounting system? I'd be doing a QoE but curious how common this is for off market businesses. Previous experience has all be through intermediary.
The QoE would align bank statements to invoices and taxes, but feels like things would be much easier to hide in a spreadsheet accounting system. Thoughts?

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Reply by a searcher
from Columbia University in New York, NY, USA
Fwiw, some caution… I just went through a similar deal. It’s romantic to imagine a clean, efficient financial standup. A major challenge in an smb context is gaining compliance from the staff to follow systems and processes that feed into the finance function. They’re used to doing things a certain way with a level of success and may resist change - especially in the context of a leadership transition that already puts strain on the culture. When you mess with a legacy system that works, it’s hard to predict outcomes or knock on effects… I would advise really gauging the staff appetite for change when building your thesis/100day plan
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Reply by an investor
from University of the Sunshine Coast in Brisbane QLD, Australia
Mind blowing for me as an accountant in Australia honestly. Most accountants are also Xero partners and generally push some sort of accounting system to business owners firstly because if you actuallyt want to understand your business (accounting being the language of business) then you can't do that easily with a spreadsheet. Secondly, because they (Xero) make it easier for us to do our jobs compliance wise.

Props to them for creating a business doing $3.5m revenue with FAR from optimal systems in place.

That would be the next thing for me, if they haven't even been bothered to implement an accounting system what other basic processes are missing.
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