The importance of bookkeeping

How the simple practice of bookkeeping can make a difference between life and death (of a business) as it did in the example narrated. A client who owns a poultry firm hired a colleague's accounting firm to do some accounting work. As it turns out when they started preparing his accounts, they noted that for example whereas the books showed sales had been (as an example) $4m the analysis showed they were infact closer to $32m! They eventually had to make amendments to their original records as they had in some cases not recorded transactions worth at least $ 25m.

How could this happen? The main problem is that the client staff (the shareholder lives abroad) had not been maintaining proper records. They have no accountant on their team.

Our experience with many clients particularly SMEs shows that when they start a business, they seem to get very busy with aspects like legal registration, setting up production facilities etc and neglect putting in place a system for bookkeeping to capture vital financial information. They only then seem to remember it in hindsight when they are starting to wonder where all the money is going.

If you are going into business, we would recommend that right at the start, if you cannot afford a full time accountant, you consult one to help you design a simple system to capture financial information.

Even a simple excel based spreadsheet in which all expenses are recorded and a simple filing system would help you prevent the difficulties faced later on in trying to reconstruct numbers.

An alternative would be to outsource accounting services. Find a CPA/accountant/bookkeeper who on a monthly basis can perform this bookkeeping function. Outsourcing can be cheaper than a full time accountant as the outsourcing firm often has several other clients and so can spread costs and provide you with a cheaper service. Need help finding the right partner? Find out more about how we can help you in this area.