This article was printed in the Sunday, March 30, 2014 edition of the Knoxville News Sentinel.
Proper accounting in business is so crucial that it would seem any businesses would have it completely figured out. However, it’s quite often badly done.
If your business’s record-keeping is poor, your accounting will be just as bad, or even shoddier. If your accounting is in that state, your business will suffer — and might well fail.
Consider all the accounting responsibilities of your business: payroll and everything related to it; meals; fuel; telephone calls; numbers of copies; mileage; and a mountain of others. Get any of them wrong and there will be operational problems and perhaps investigation, financial penalty, lawsuits — or worse.
It’s remarkable how often accountants encounter highly astute business owners who nevertheless operate in a dark room when it comes to their business’s records.
In January 2011, a New York Times blog by Jay Goltz listed the top 10 reasons why businesses fail:
“If the owners really knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.”
His No. 4 reason for business failure:
“Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time.”
This following example occurred in a multimillion-dollar publishing business. An employee in a department made a significant mistake. The department head was called into his supervisor’s office, given a reprimand, and told to get his department in shape or his job was on the line. Another employee, hearing what was happening, said to the beleaguered manager that it wasn’t fair. He hadn’t made the mistake. It was someone else’s fault.
The manager’s response: “You can delegate authority, but not responsibility. Mistakes in my department are my responsibility.”
If that’s true for managers, it’s exponentially true for business owners. If you’re not 100 percent sure your accounting is well-organized and complete, there’s a 100 percent chance you may be in for an unpleasant surprise.
Perhaps you have a bookkeeper or accountant in whom you have complete confidence, either because you trust that person or you just aren’t certain what they do. Or both. At the same time, you’ve effectively put your business life in that individual’s hands.
If there’s any doubt, and even if there isn’t, of the processes and procedures used by your financial department or accountants to ensure your records are pristine, ask questions. Don’t take obscure and highly technical responses for answers. If it’s not absolutely clear, if you have any concerns, if things don’t seem right, do as you would for a medical condition: See an accounting specialist for a second opinion.
In the end, it’s irrelevant how good a company’s products, sales and services are. If that company’s accounting is flawed, difficulty is certain, failure is probable. If a business owner thinks otherwise, there’s no accounting for it.