One Sherpa

In this series we’re going to look at all the reasons why the accounts of a business may not be telling the truth and why there are so many demands on the accounts that often business owners simply give up and ‘do their own thing’

Some of the topics which we will be covering are:

1. How does the timing of payments for items such as purchases affect what I think my profit should be?
2. Is my business a going concern and if so what items should I be accumulating?
3. How come the profit I make doesn’t show up in my bank account?
4. As a business owner, where do I report my drawings to make sure that I get paid by my customers?
5. What the heck is a balance sheet all about and why doesn’t it make sense?

I guess the obvious question is: “Should I have an expectation that my books will give me everything I need to know about the numbers of my business”?

Intuitively the answer is NO, but there seems to be an expectation that they will.

When the books make no sense, business owners usually give up on them as a tool for running their business, and go back to running the business more intuitively. Then on the appropriate occasions they make sure the books are completed to comply with the tax rules so they can file tax returns.

I do believe that the books can be the best overall place to derive financial information from, BUT only if they are prepared correctly. Often the book keeping is delegated to an administrative low level person in the company and as a result mistakes and omissions can occur.

Sometimes a business simply can’t afford to have a fully qualified accountant in their business and as a result they tend to run cash books rather than proper accounting books which are the easiest way to prepare tax returns.

Computer programmes such as MYOB and Quick Books are designed to produce proper books but they’re only as good as the information which is put into them and again most of the focus is on getting tax information correct.

My experience from over thirty years in this space has taught me that it is more likely that the books are incorrect than correct. Also I have far more faith in the business owner knowing intuitively what’s going on than taking their books as the definitive answer for what’s really happening in the business.

This may sound a little controversial but it’s the truth. Many businesses have a desire to get their books correct BUT that can be a journey and while that journey is taking place there needs to be a method of working out what’s going on!

In my next post I will be discussing a way we have discovered to give business owners a powerful snapshot and diagnosis of what is actually going on in their business without the need to complete a formal set of accounts.