I attended an Insolvency Update last week and one of my own hobby horses appeared again.
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-existant.
What I find difficult to accept is that, while most companies now use some form of computerised 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 Even where businesses are getting reports from the system, the reports will be either out of date or unreliable.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?”
But they don’t fix 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.
- Review the setup of the accounts and ask are they designed to give you the manangement information that you need
- Check are the opening balances correct. You will probably need help from your accountant here but I think 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 debtors account and make any corrections necessary for discounts, bad debts etc. Do the same for your creditors – reviewing for discounts and writeoffs etc.
- Finally print off a Profit and Loss and Balance. 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 must be reliable. When looking at the Profit and Loss, I like having a drilldown feature. When someone says “whats in telephone or whatever”, you can just drill down on the account to see what transaction make up the figure for telephone.
- If you do all of that, you accounts will be reasonably reliable and good enough to work with.
If you have any comments on this article or if there are any areas you would like to address, please do let me know.