This is a good story to demonstrate the importance (and benefits) of having consistency and attention to detail in your business, especially when it comes to your finances.
Since taking over the business accounting of one of our successful SME clients several years ago, we have helped them implement good financial systems that then supports high quality, up to date reporting from their internal bookkeeper.
The business ownerhad noticed some end of financial year discrepancies and cashflow issues. They asked for our help to identify the issue.
After a thorough ‘review of the books’ we were able to determine:
- The business was making money (good news!)
- Invoices for work were slow paying.
- Bills payable were up to date.
- Cash flow was affected by ‘abnormal events’ in the business
- The director drawings were consistent.
- What the business cash flow looked like for the next three months.
The business was making good profits. So where was the problem?
We concluded the business was facing immediate cash struggles as a result of winning a large job and paying for associated costs upfront.
We were able to identify potential sources of cash reserves and other options to manage cash flow better.
The meeting was a success!
The key? Well, the ‘devil is in the detail’…
- You can’t tell if you’re making money if your financial reporting is out of date or inconsistent.
- You can’t tell who owes you money if your financial reporting is not current.
- And you can’t tell what your forecasted business cash flow is going to be like if you don’t know what your financial position is now.
So, as you can see, it’s important to keep your finances up to date and maintain consistency in your reporting. Any ‘red flags’ or inconsistencies are much easier to spot and appropriate action can be taken.
And so you – or your accountant – can see the true ‘state of play’ in your business.