“We’re about to run out of money.”
I could hear the shock in this business owner’s voice. Not just fear – but shock…. because this horrible turn of events was entirely unexpected.
They had a good business, a good team, and a good product which was selling well.
They’d even tried to professionalise their accounting methods, buying the state-of-the-art Xero accounting platform.
The problem was, the numbers being fed into it just weren’t up-to-date. Their accountant hadn’t adjusted the system to reflect what they had done at the previous year-end, and so this year’s figures were wrong, too.
The business owners, however, had no idea this was going wrong – and trusted the numbers they were given blindly. They made decisions about their business based on inaccurate information.
The result: They woke up one day about to go bust – and didn’t have the slightest idea why.
In recent blogs, I’ve run through some of the biggest but yet most common accounting mistakes that can happen in your business. This includes you, the owner, not properly understanding the difference between profit and cash; and your bookkeeper failing to take into account information they are not given, such as expenses.
These are fairly different problems, but they have one theme in common.
Don’t believe everything your accounts seem to tell you.
Just because it’s down on paper does not make it true.
Mistakes happen all the time – bad mistakes!
And as business owner, it’s your responsibility to question what you see the whole time. If your gut instinct tells you something is wrong with your numbers, you need to investigate further. If you are not 100% sure that your accountant or bookkeeper is working by the book, you must challenge them.
At Insight Associates, we never give our clients any financial information until we are certain everything has been done correctly.
We work to checklists, have multiple people review each set of accounts, and check and re-check ad-nauseam to ensure everything has been accounted for. We compare figures to your budget and to last year’s figures, to make sure everything makes sense. We reconcile what your accounts say is happening with what your bank account says is happening.
You should hold your own accounting team to the same standards. Even if you hate dealing with numbers, you must ensure that there are systems in place, so that all accounts are up-to-date, complete, and verified. Ensure that whoever is dealing with your accounts understands the big picture of how your business operates, so that they can ask the right questions, notice what’s missing and when something doesn’t seem to make sense.
If you’re not absolutely certain your accounts are right, always err on the side of caution. It’s better to be pessimistic and pleasantly surprised than the other way around.
The truth is that larger companies have an advantage. They have the resources to put in place all the necessary systems to run their finances professionally. They rarely rely on one bookkeeper or accountant, but instead employ a variety of staff in their finance department with different skillsets, who can all double-check each other.
Smaller companies are more liable to make mistakes because they rely on one bookkeeper or accountant, who rarely work in tandem, do not have the insight into the business to spot mistakes easily, and do not have the resources to continually reconcile and double-check all figures.
If you are a smaller company (turning over £1m-£10m) but would like the same kind of smooth, professional financial management a larger company takes for granted, let’s talk. With our outsourced finance department, you can get those exact same systems, team and knowledge -right now!
Not only will you have complete confidence in your numbers and never have to worry again about whether they are right, we’ll show you how to use these numbers to make better business decisions – and grow much faster.
