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From a proper old pickle...

This client is another favourite of mine. The business owner had plans to increase profit from USD 2m to USD 2.5m whilst reducing costs.  He needed accurate management accounts in order to get a good overview of his business, but this current bookkeeper was not able to provide the information. Their accountant referred them to us due to our specialist abilities.

When we take a new client we carry out a little mini audit on their accounts to see if we can use them to provide management information. One of the first things we check is that the banks on the accounting system reconcile to what the actual bank balances were at a certain date. If they don’t match, it’s a tell tail sign that something has gone wrong along the way. In this instance the difference was USD 1m(!) just on the first account we checked! (there are 6 other accounts!!!) Lots of exclamation marks here for good reason!

Examples of just how wrong the accounts were:-

  • None of the bank accounts had ever been reconciled.
  • £45k in bank fees that had not been accounted for over a 12 month period.
  • Supplier invoices had been entered twice.
  • Supplier invoices had been paid twice!
  • The Supplier payments hadn’t been matched to the invoices or the above would have been found.
  • Some supplier invoices hadn’t been paid at all, despite deadlines for bookings.
  • Bank transactions had been entered in the wrong bank accounts.
  • Bonus payments had been entered twice (but not paid – thankfully).
  • 6 months of invoices from one supplier, totalling £60K had not been entered at all.
  • Invoices to customers had been raised twice, and credit notes not issued for the errors.

The state of these accounts still never ceases to amaze me! We often see this kind of mess when business owners don’t want to pay a professional and choose to do their bookkeeping themselves, but it’s pretty rare that a self-employed bookkeeper manages to mess things up on such a grand scale. In short, profits were massively over-inflated due to the duplicate sales invoices and costs were not fully realised because of the missing information. No wonder the business owner struggled to get the information and had no idea how the business was really performing. It is worth mentioning here that his tax burden was much higher than necessary.

Once all these issues were fixed and everything reconciled properly, we were able to provide the owner with an up to date and accurate set of Management Accounts, create a cash flow forecast and start talking about ways to improve and grow the business while putting loose sales targets and budgets in place to facilitate this. We looked at which parts of the business are making money and which are not, how much turnover staff needed to make to cover their salaries and optimum bonus structures for employees when they reach their targets, as well as how to most effectively spend money on advertising. Because the business mainly deals in international payments, looking at different banking options in order to cut fees is also worth doing on a regular basis.

Because of the previous issues with the accounts, the owner wanted supplier payments made every day to ensure his suppliers didn’t cancel his orders. We were able to streamline this process by putting an invoice approval process in place and now there is one weekly payment run. Among the benefits of this – it cuts down on the time and resources needed, which reduces the cost. The owner has clear transparency on what has been paid and to whom. The money stays in his bank for a few more days and his suppliers know they will receive their money within a week of invoice.