My great desire is to help a select few clients improve their decision making processes so they can become more profitable. I wish to share in the excitement of my clients as they move to the next level.
Over my career I have learned one very very important lesson: MOST BUSINESSES DO NOT HAVE ACCURATE FINANCIAL RECORDS. This is not an indictment on the business owners. Somehow people have been led to believe that recording financial transactions into a computer program is the same thing as performing accounting. It is not. Just as it takes a professional doctor to make sense of the symptoms I feel, just as it takes a professional farmer to make sense of what he sees in his fields it also takes a professional accountant to make sense of accounting information. Perhaps an example will help.
Time and again I have seen people use Quickbooks to record loan payments. This is recording a financial transaction. However, very few record the loan payments correctly. If done correctly a person should be able to produce an accurate report showing how much interest the loan has cost and a report showing how much is still owing on the loan. What happens in practice is the transaction is recorded and we wait until year end for our accountant to true up the accounts. This happens in April or more likely just before the extension deadline in October the following year. We refer to that as useless information by then.
The above example is just referring to one item, one loan. Typically there are many pieces of useless information that people generate in Quickbooks because the process is recording financial transactions, not performing accounting. However, the information is not just useless, it is hazardous. When people attempt to make business decisions based on inaccurate financial data can we expect the decisions to be anything other than inaccurate?
In future blogs I will continue to explore this problem, attempt to better explain it and of course discuss the appropriate solutions.
