David Maher from Right Brain Enterprises shares his personal experiences with bookkeepers below – its certainly food for thought on a Friday Afternoon.

Right Brain Enterprises helps creative entrepreneurs successfully manage and grow their businesses.  5ways is proud to partner with them.

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Ever since man was first inclined to gather possessions there have been those whose purpose was to count, record, reconcile, and report on said possessions.

Today these people are known as Bookkeepers; those who record the financial comings and goings of your enterprise. They may be located geographically proximate to you, or in another time-zone altogether. The fact is that like so many things in life a good one is hard to find.

This post is about sharing my personal experience with bookkeepers and the utter destruction that can be laid upon by them. Hell hath no fury like a bookkeepers incompetence…

First let me say that not all bookkeepers are bad. The vast majority are great. Many in fact are very very good. But what happens if you’re not so lucky… well picture this…

The bookkeeper engaged by an agency for the previous 4 years is transitioning the books across to a new person. All the files are dumped, and the digital version is emailed. Awesome – should be easy. After all we are assured that all is up to date.

However, cracks quickly begin to emerge…

While the principles of the agency were busy busting their guts to find great projects and pull off amazing works of creative expression, their entire operation has been systematically undermined beneath them.

– Bank accounts never reconciled = your data is grossly inaccurate. You’re effectively flying blind

– MASSIVE transactions moving through petty cash = huge audit risk

– Sales doubled up and never reconciled = congrats you paid extra to the taxman

– Staff liabilities NEVER reconciled = lube up should a disgruntled staff member ever pick that up

– Some staff liabilities paid late, or just not at all = as above, apply more lube

– Income taxes never paid = you’re going to need a safety word for that pounding

The list goes on…

Unfortunately I wish this story was fictional. But alas it was my personal experience having taken over from someone thought to be reputable, but uncovered to be utterly insulting to most incompetent of their peers.

The total cost just to correct the records was roughly 2% of gross sales. The financial impact due to missing items, late taxation payments, doubled up transactions, incorrect payroll and the like was close to 12% of gross sales.

12% of gross sales!!! Put that in perspective – if your business turns over $1m (that is just turnover, not even profit) that means you now need to find $120,000 in cash simply because some idiot did not do their job.

Compounding this is often the problem that penalties (i.e. late superannuation – 401K to our American readers) are often not tax deductible. Meaning you are forced to pay such penalties from your after tax net profits. Bye bye bonus… bye bye…

For instance if your net profit margin is 10% on your $1m of income, that means you need $1.2m in NEW income, just to get you back to where you started ($120,000 / 10%)!!!

Think of all the fun you could have had with that money… Depending on your size it could range from a dumptruck of supermodels, to kicking it with the high rollers.

So what to do about it?

Here are my thoughts, having been through this:

– Trust your gut. If you think something is up. It probably is. Investigate further.

– Once a year engage a second opinion. Ask your networks for anyone recommended, then have them simply review your records. It might cost you a day of their time but think of the ‘peace of mind’ factor.

– Test them by deliberately doing something you know is stupid yet safe. This might seem unorthodox, but hear me out… For instance, withdrawal a small but noticeable amount of cash from your company bank account, hide it and don’t tell anyone. See if you are asked about it, and look at how this transaction is recorded. It will come up on your bank statement, and therefore must appear in your books.

– Get educated. While you can find great help out there, if you are running your own business you need to have at least a basic idea of how your financials work. Don’t rely on someone handling 100% of the responsibility.

– If you don’t have a reporting regime in place, start it. Now! Post the aftermath of destruction I was able to build a real-time financial and business intelligence system because we had accurate data. Point being, a reporting regime will help expose any weaknesses in your records ASAP.

Some of you reading this might think I have nothing but distain for Bookkeepers. I assure you this is not the case. Some of my best friends are Bookkeepers. I share this because it is an area of business often overlooked. Usually it’s all good. But if it goes wrong, it goes wrong in a really bad way. Your compliance is your foundation. Make it a strong one.

Had trouble or awesomeness yourself? Share the love and let’s help some of those bookkeepers out there become less ‘douchey’.

Dave from Right Brain Enterprises

http://rightbrainenterprises.com.au

About David:

 David escaped the corporate world and fell into managing the finances of a creative agency. At first this company was an absolute dog’s breakfast! However over the course of two years he increased their gross margin from 30% to 55%, and net profit 6 fold, without compromising creative control.