I was most interested to hear about the scandal revealed at BT this week. As someone who understands the checks and balances that keep a business safe, you can only wonder how much incompetence and / or manipulation was taking place.
They never hit the headlines but accounting scandals are happening every day in small businesses right across the country. And for these businesses the results can be far more devastating than a drop in the share price.
For a small business it can be Game Over.
What on earth am I talking about?
I’m talking about one of the most fundamental issues in small business. The very real problems caused by the black hole of finance skills and strong financial information.
It’s the sole reason we do what we do at The F Word – trying to fill that black hole, getting those critical finance skills into small businesses so that years of slog by the business owner can’t be undone in a matter of months by an unqualified and inexperienced book keeper, or sloppy accountant.
But surely I can trust someone if they say they’re a book keeper or accountant?
It would be fantastic if you could. But in the small business world you’ll find that most book keepers have no qualifications or formal training and are likely to be self-taught, with variable experience. This means you’ve no way of knowing if they fully understand and can keep your business safe. Lots of people call themselves book keepers when all they know how to do is key “stuff” onto Sage.
A lot of the clients we’ve worked with in the last year have been badly let down and financially damaged, either unwittingly by finance staff being out of their depth or by their year-end accountant who should have damn well known better. Honestly the things we come across would truly shock you.
For some reason we whole heartedly trust complete strangers with our financial future because it says book-keeper or accountant on their CV or business card.
In the interests of fairness we also work with some awesome book keepers and accountants, but I have to tell you they’re few and far between.
Why do I say it’s a scandal?
As business owners we work our socks off running our business – trying to build a better future, wanting to make some sort of difference, and hoping one day our financial future will be secure thanks to our business.
The financial reality for the vast majority is a struggle. Lurching from problem to problem, always with tight cashflow. And very few ever get that dream of some level of financial freedom.
We know how different life looks when your finances are well controlled, you have fabulous financial information and you’ve got a financial strategy.
The most common scandals we see in small businesses
- Bad book-keeping. This can cause more damage than you could imagine – especially if you’re using information from your accounting system believing it to be correct. Everything from not understanding capital purchases, director’s payments, payroll, loans and repayments and just plain inaccurate and inconsistent coding.
- Nothing being reconciled. It’s not enough to bash transactions on the system, everything has to be reconciled to make sure it’s accurate and makes sense. Otherwise you’ll never know if the figures you’re given are correct, and who you owe money to.
- No cash flow controls or cash forecasting.
- Literally no management information apart from what’s in the bank today – the business owner running completely blind.
- Year end accountants glossing over poor book keeping; never showing them the way to do it properly.
- Down-right passive year end accountants who should have the business owner’s back but let them sleep-walk into difficult financial situations.
- Major business decisions being made on bad information
- Absolutely no financial strategy or route map – leaving the business with no direction.
- And sometimes, more often than you’d imagine, we see fraud by finance staff.
The added dangers of automated accounting with Xero and Quick Books
Anyone who says you “don’t need to understand” and “it just does it all for you” is lying!
I can’t deny the efficiency of cloud based automated bookkeeping. Done properly it’s an amazing tool to free up more time. The problem as I see it is that it’s been dumbed down to make it easy for “anyone to be a book keeper”
There’s a big problem with that, you still need to fundamentally understand what you’re doing, the messes we’re seeing now with these packages is even worse than Sage – it’s too easy for things to go wrong when everything feeds in automatically.
In finance things are either right, or they’re wrong – there is no in-between.
And if your book keeping isn’t spot on, information you use from your accounts will be nonsense!
So we have to know enough ourselves
This is why I have SUCH a bee in my bonnet about this stuff. I’ve seen so many times the fallout from bad book keeping and from passive, reactive accountants, that I firmly believe that as a business owner we have to understand enough to know when things aren’t right
So what can you do to stop a scandal in your business?
You need to be certain that your book keeper really knows their stuff. Get your accountant to do a review, or we do a very comprehensive financial health check that will tell you everything you need to know, ugly warts an’ all.
Then make sure you’re getting rock solid financial information –some weekly, some monthly (never ever quarterly please –there’s just no excuse for that)
Then USE that information to see where you are, where you’re heading, and to make smart business decisions that will create the future you want.
And find a way to learn enough about finance so that YOU would know if something was wrong.
As you probably know, I hate the pushy sales thing, but as luck would have it, we can help you with all of this, so it would be remiss of me not to mention it in passing!
And remember, finance isn’t an admin task – it’s a skilled profession that takes years of experience and study to know what you’re doing.