Getting a bookkeeper who understands your accounts
I recently witnessed a situation where a bookkeeper exclaimed “the balance sheet isn’t my responsibility, that’s for the accountant.”
This is essentially the equivalent of a tradesman not knowing what his tools are for!
Of course the P&L is important, but that only tells you part of the story. The P&L tells you your trading activity over a period of time, the balance sheet tells you the position of the business at any given point in time, and, the cash flow statement shows the liquidity i.e. cash movement
If you’re not paying attention to the balance sheet, chances are things aren’t being recorded properly — which means you don’t have a complete or accurate picture of where your business really stands.
This manner of thinking can quietly wreck a business over time. For example :
Your business may be profitable when looking at the P&L, but, you can't tell if your cash is tied up in outstanding invoices, or if you are overspending on inventory and/or equipment. You don't want cash being stuck in your business.
Not keeping an eye on your liabilities can mean repayments eating into your cash flow and poor cash flow management is the biggest cause of business failure.
Banks and investors will look at your balance sheet. They will need to know your business's debt levels, assets and equity in order to provide you with a loan/investment.
You may think the business is doing great because it is profitable, but, in reality, you may owe more than you own or have insufficient cash as buffer.
And what’s the core, most basic principle of double‑entry accounting? It's keeping the balance sheet balanced!!
You can now see the pattern emerging here.
If the person handling your books doesn’t fully understand what they are doing, that should raise concerns. Your accounts aren’t just the P&L. Yes, profit matters for tax planning, but it’s only one piece of the financial puzzle. A good accounting professional should be helping you understand the whole picture.
