We published a blog post at Ashton McGill recently about the insights we’d gained in our first year as an accounting business. The key takeaway was that if you’re going to build a truly successful business then you need to get the right foundations in place. It’s just like building a house, and in this case the foundations are solid, accurate, bookkeeping.
Yes, you need to be great at what you do, but if that’s not under-pinned by the foundation of good bookkeeping, then you’ll never know if you’re making a profit, how much you’re owed by customers, how much you owe suppliers. I’ve seen many, on the face of it, good businesses collapse because they didn’t look after the numbers.
So what exactly have we learned, and what can you do about it?
Our first insight was that where a company employs a bookkeeper – someone who works in the business, and whose tasks include the bookkeeping – it’s always much better. Every now and again they’ll need to check something with us, but on the whole they’re on top of the numbers and know what they’re doing. They’ll generally have experience with the software they’re using (in our case Xero & FreeAgent) and might even be qualified Bookkeepers. With these clients we can confidently move onto the other steps in the process (cashflow management, accounting, reviews & strategy) and rely on the base data.
The Software makes it easy
This is a twin-edged sword. I wrote about this back in 2017. Modern accounting software like Xero, FreeAgent, and Quickbooks is so user-friendly compared to the awfulness of Sage. Automatic bank feeds, Receipt Bank, cashflow management apps like Float & Fluidly, and a whole plethora of other apps have been designed to take the pain out of bookkeeping life. And they save a tonne of time. On the face of it….
The problem is that they can make it TOO EASY to make mistakes, and you won’t even know you’ve made them! So you keep on doing what you’ve been doing, each time making the problems worse. But you don’t realise that. It’s only when your accountant takes a look under the bonnet that the magnitude of what’s happened is revealed.
Bookkeeping’s one of those tasks that people put off. There’s always something better to do. Even with all this automation, it still gives people the fear. So they put it off. Those unreconciled transactions sit there on the Dashboard, taunting you. The receipts pile up in Receipt Bank, blinking away at you, expectantly waiting to make their journey over to Xero – the promised land, where they’ll meet their match. It’s love at first byte.
By letting it build up, a couple of things happen. You forget what those receipts were for. Or worse still you decide to batch upload the receipts and you mis-place a bunch of the damn things, so they don’t even get to Receipt Bank.
Secondly, when you do get round to reconciling those bank transactions you rush it, ‘cos you just want to get it done and out the way. Clicking the wee ‘OK’ button gets addictive. Xero know that – they gamified the bank rec! The problem with rushing it is that you might end up posting to the wrong account; you forget to match it against the invoice that you sent over from Receipt Bank; you select the wrong Vat code; and forget to add the tracking code, which means that we can’t report on each Location or Division accurately.
Needle in a Haystack
You finally get the bookkeeping up do date. No bank items left to reconcile (although Xero still says there’s a difference in the bank account – how can that be?).
You want to know if you’re making a profit, so you head to Reports and select the P&L. The Report you’re looking at doesn’t make sense – the numbers are all over the place. So you email your accountant and ask them to have a look at it.
Also, there are bills that you know you’ve paid that are still showing up as unpaid. There’s obviously something wrong with the damn software. Can we have a look at it?
Sure. But we’ve got to figure out what we’re looking for in amongst a mass of data. It’s a forensic process that takes time and money – often way more than it would have cost to outsource the bookkeeping in the first place!
A False Economy
I’ve come to the conclusion that trying to do the bookkeeping yourself, without any help or support (unless you’re a qualified bookkeeper or accountant) is a false economy.
Sure, you’ll save some money by doing it yourself in the short-term, but if the bookkeeping’s a mess – and it might not be your fault – then not only will it cost more for your accounts to be prepared, but you won’t be able to rely on the information on your P&L.
You’ll be making decisions based on inaccurate information.
So What’s The Solution?
The first thing is to get some training. At Ashton McGill, we run a FREE drop-in session EVERY Friday at our office in Dundee. You can turn up, have a coffee or a beer, and get some support from one of our team. If you work remotely, you can book a call and we’ll work with you over Zoom. A little training will go a LONG way, and we’ll both then have more confidence in the figures.
Next, be clear on the process you need to follow, and the order in which it needs to happen. Here’s the deal:
- Get your receipts into Xero – Receipt Bank is only £10 a month, so it’s a no brainer for the time it will save you. You need to do this first, BEFORE you start matching any bank transactions.
- Make sure all of your sales invoices are in Xero too. If you’re not generating them from Xero – perhaps you use a plugin like WooCommerce or Quaderno – make sure they’ve been imported. Your accountant can help with that.
- Only then should you start Reconciling bank transactions. Match them against the invoices & receipts you’ve uploaded. Be careful to choose the right ones!
- If you have any transactions where you’re not sure what to do, then DO NOTHING. On Xero you can use the Discuss tab to leave a note for your accountant. They’ll help you make sure it gets posted correctly.
Little & often works best. Don’t leave it all to the last Sunday of the month. We do our own bookkeeping on a daily basis, and we upload receipts to Receipt Bank as soon as we make a purchase. With Receipt bank Fetch, our online invoices from the likes of GSuite, Amazon, Dropbox and a host of others are brought into ReceiptBank automatically, as if by magic!
Can you just do it for me?
If all of this sounds like too much trouble, and you just want to get on with running the business, then why not have a chat with your accountant about outsourcing the bookkeeping.
At Ashton McGill, this is a growing part of our business. With our new Telleroo Partnership, we can even make bank payments on your behalf!
Whatever you decide to do, please realise that getting the bookkeeping right in your business is vitally important. It’s the foundation upon which everything else can be built.
You wouldn’t build a house on sand, would you?