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Making your accounts work for you.

Are your accounts giving you information that helps you manage your business?

Most accounts don’t.

When I go into a new client, one of the first things I do is to review the existing accounts.

I am looking to see if they could get more information – additional analysis – from their accounts.

The Sales account is the first account I see. Most accounting systems have only one line for Sales. Yet, it is helpful for most businesses to analyse their Sales in more detail.

You can analyse by the type of work, the nature of the assignment, the type of customer, the geographical region or any other way that gives useful information.

For example a business consultant might have once off consultancy assignments, ongoing retainer assignments, training etc. I mentioned this to a client recently who has launched an initiative to win more retainer business. Analysing his sales in this way, will make it much easier to see if the initiative is achieving the results he wants.

An engineering business might work for industry or for building contractors or for farmers. When I worked for an engineering company some years ago, they realised that they were making a lot less profit on their farming customers. The accounts analysis prompted further investigation and they ended up pulling back from that sector with the result that they achieved better profits with lower sales.

A medical practice might have GMS, private patients, occupational health contracts or public body contracts.

Breaking down your sales can help you manage margins. It can help you understand if your marketing is working. It can show you which parts of your business are performing best for you.

Each business is different and each business owner should sit down and ask what information would be useful to him/her. And remember , this analysis can be applied to more than just sales. Any Cost of Sales or Overhead account has the potential to be analysed further. If you find it useful to analyse your sales one way, you will probably find it useful to analyse all of your costs the same way.

Ask yourself if any costs are giving you cause for concern. What additional information would help understand those costs better? Go into your accounts and set up accounts that will help you with this analysis.

Your accounts will still show the same overall result. You will be just making the numbers work for you instead of you working for the numbers.

Some of the biggest improvements I have helped make in businesses have come from using this type of analysis to understand what is happening in the business.

I have been able to show that a business is losing money to one set of customers and subsidising that loss from a different set of customers. The information was there but the system was just not set up to deliver it.

So have another look at your accounts. Is there some other way of analysing the information that would be helpful to you? Go ahead, then, and make the changes.

If you have any questions about this post, feel free to send me an email to jim@accountsplus.ie.

Getting Better information from Computerised Accounts

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.

  1. Review the setup of the accounts and ask are they designed to give you the manangement information that you need
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Best Wishes

Jim