I remember once attending an Insolvency Update. One of the speakers, who regularly works on examinerships, commented on the lack of good accounting information in most of the companies that go into examinership.
This really struck a chord with me. In most of the improvement projects I have worked on, the accounting information was either poor or non-existent.
What I find difficult to accept is that, while most companies now use some form of accounting software, very few are getting management accounts. Even where businesses are getting reports from the system, the reports will be either out of date or unreliable.
There’s nothing worse than picking up a report, asking the owner about it and hearing “Ah, sure. That’s not right”. And I’m thinking, “well, if you know something’s wrong, then why haven’t you fixed it?” They’ve done 70-80% of the work needed to have good accounts but they haven’t finished off the 20-30%. So the information they have is more than likely misleading,
It would only take a few things to make huge improvements in the quality of the information using accounting accounts.
- Review the setup of the accounts and ask are they designed to give you the management information that you need
- Check are the opening balances correct. If the opening balances are off, the the current year information may not be reliable.
You will probably need help from your accountant here. They should be adjusting the opening balances for you anyway. - Sanity check the information that has been input. Prepare bank reconciliations to prove that your bank account is reliable. Review your customer balances and make any corrections necessary for discounts, bad debts etc. Do the same for your suppliers – reviewing for discounts and write-offs etc.
- Finally, print off a Profit and Loss and a Balance Sheet.
Go through the Balance Sheet first. Is every asset listed correctly? Do the liabilities look correct? If your balance sheet is reliable, then the net profit to date is likely to be reliable.
When looking at the Profit and Loss, I like having a drill down feature. When someone says “whats in an account”, you can just drill down on the account to see what transactions make up the figure for that account. - If you do all of that, your accounts will be reasonably reliable and good enough to work with.
Here is a blog that can help you improve productivity using smartphone apps.
If you have any comments on this article or if there are any areas you would like to address, please do let me know.
Best Wishes
Jim