Business competition is getting tougher, making it important to not only keep an eye on other other firms in the industry, but also hold up a strong reputation with potential customers. Companies that want to continue to be viewed in a positive light by their client base and prospects may want to invest in business budget planning and forecasting software to avoid any accounting errors.

These solutions could prove to be even more beneficial for businesses than previously thought, considering recent research conducted by Concordia University's John Molson School of Business found companies that revise their prior financial statements are thought to have poor leaders. Additionally, these businesses could be suspected for fraud.

"If a negative statement affects the future expectations about a firm, its management and its corporate governance, it can cause the stock's price to decline, and can in some cases eventually result in the demise of the firm," said Lawrence Kryzanowski, professor and senior research chair in finance in Concordia's John Molson School of Business.

A poor public image could devastate the firm
Ying Zhang from the University of Manitoba, a co-author of the study, and his research team evaluated more than 100 businesses that announced restatements and found that such companies are more likely to replace their presidents, CEOs, CFOs and/or external auditors, and bring in people who can start a new culture at the business. 

"When these firms make changes to pre-restatement management and external auditors, that signals that they are dealing with their internal agency problems," said Kryzanowski, who also co-authored the study. "They are trying to mimic the governance practices of non-restating firms in what's likely an attempt to improve their public image."

Avoid accounting problems at all costs
After seeing how poor accounting at a firm can wreak havoc on a business, it's more important than ever for companies to figure out their bookkeeping to ensure that they won't have to suffer from any of the effects of financial restatements. An article for Entrepreneur magazine shared a list of accounting tips to create good habits when managing finances.

  • Track everything: Many businesses have a lot of different fixed expenses, as well as a number of other unexpected expenditures. Nonetheless, it's important to keep track of all spending for proper recordkeeping.
  • Plan for the future: There are not a lot of firms that have excess money laying around where they can make purchases at any time. Many major expenses will have to be planned for months in advance in order to have the capital for key business opportunities.
  • Manage invoices closely: Companies always need to pay their bills on time. Missing invoices can make this hard on the firm. By having someone in charge of invoicing, the business will be sure it has a comfortable amount of available cash on hand.

These simple accounting tips can go a long way in helping the business maintain a strong reputation among its customer base.