Company A, as we refer to them. What to say about Company A. It all began when an Accountant contact of ours asked us to go in and get a finalised Trial Balance for their Year End Statutory Accounts. They had been trying to get the information for 5 months and each time they asked the Financial Controller he gave them the wrong information or different answers each time.
I went in, got the Trial Balance from the information I was given in 2 days so the Accountant could file their Statutory Accounts. Then the fun began!
The client asked us to stay on and help sort out some issues they were having with suppliers as, to use their words, they’d got themselves “into a bit of a pickle”. They had run into a little debt, got some funding from investors and needed to know the financial situation of the business. They thought they had debt of around £300k, which on a £2m business, isn’t a big deal.
I pulled in my trusted bookkeeper to have a poke around and find out why the information was so difficult to obtain. It turned out their Financial Controller was completely out of his depth. His previous job since completing AAT was working part time for a cash rich marketing company, where he produced their monthly invoices and allocated receipts. He had never set up and run a cashflow, he didn’t know how to use Xero and had not entered a single transaction for 9 months. He had been “keeping things up to date” on around 6 separate spreadsheets, but none of the spreadsheets actually matched each other and they didn’t match the supplier statements!
Their sales were being recorded because invoices were issued by a separate team through Xero, but without their costs, no-one had any idea how the business was performing. The investors were unhappy because they weren’t seeing a return on their fund injection; Suppliers were left with no alternative but to take legal action because they were being promised payments but because there was no cashflow in place, someone else would shout louder and money was running out before the payments could be made. And to make matters even worse, no-one was able to provide any firm answers on what was actually going on.
Our first and most important task was to get the accounts in Xero up to date so we could see exactly where things stood. We worked intensively and entered 9 months worth of purchase invoices in just 4 weeks. By the time we’d entered every single transaction and reconciled what we could, it turned out the debt was actually £976k, not the £300k as originally suspected, with a working cash deficit to the tune of almost £600k! Finally management and investors could see the severity and magnitude of the problem.
Armed with this information, I was able to put in place an accurate cash flow forecast and start communicating with their suppliers and explain the situation to them, convincing them to hold off legal action for just a little bit longer, to enable the business to seek the professional help it required to get through this horrible patch.
Company A needed someone in their business full time in order to deal with the chaos that ensued and have now employed an experienced full-time Financial Controller.
However, if there is one MASSIVE lesson to be learned from their mistakes – it’s not a good idea to work out this kind of information in your head. It needs to be documented so you don’t miss anything!! At the very least, enter it all into a spreadsheet and reconcile your bank account.