How you can avoid bookkeeping horror stories – as seen on SMEweb
Published on SMEweb.com 24 Sep 2010
Running a business these days is tough enough without having to stress about your accounts. Increasingly, thanks to the recession, this is one business function that has enjoyed recent recognition and appreciation of its criticality.
But what happens if your books have suffered in the hands of an incompetent bookkeeper or accountant, or your books have simply been neglected?
The bad news is that the consequences can be dire. As an example, under the Companies Act 2006, late filing of accounts or annual returns can incur a fine ranging from £150 to £7500, and, even worse, it can lead to a criminal offence for the directors.
Sadly, this is just the tip of the iceberg. Incorrect tax returns arising from accounting errors can lead to immense, unbudgeted tax liabilities which could potentially cripple your business.
Poor internal controls around your accounting processes could give rise to incorrect financial statements, inaccurate cash flow reporting, overpayment of tax, missing of critical filing deadlines or, the most dreaded consequence of all, undetected and prolonged fraud. The number of different ways that devastating errors could be made is countless. Sadly, in this current economic climate, it can be a recipe for insolvency.
So what preventative steps can you take to ensure your business doesn’t become the next victim of poor bookkeeping and/or accounting?
1. Recognise and accept when it’s time to get help.
Not only is it a legal requirement to keep your books up to date, but most importantly it is critical for the success of your business to have (at least) monthly reporting showing you your business’s financial position. It is vital that your books are done by a professional with an accounting or bookkeeping background. Ultimately, this could be the difference between failure and success for your business.
2. Ensure you partner with the right bookkeeper.
Selecting a trustworthy and competent bookkeeper can be tricky, but here’s a few tips to help. Firstly, ensure they’ve qualified with, and have a practice licence from, an appropriate professional body such as the ICB, AIB or AAT. Secondly, check their professional indemnity insurance is valid and is of a suitable level (£1m – £2m). Thirdly, make sure you have a back-up plan for cover when your bookkeeper is sick or on holidays so you’re not left high and dry.
3. Seek the support of an Accountant.
Whilst the bookkeeper will perform your day to day transaction processing, a qualified accountant will produce management accounts and commentary to add value to your business. Most importantly, the accountant should also check the integrity of the bookkeeper’s work and ensure that adequate and effective internal controls are in place around your bookkeeping processes for your complete peace of mind.
4. Invest time to understand your monthly management accounts – and take action.
The days of producing accounts once a year are gone. In today’s economic climate, it is imperative to have up-to-date financial data at your fingertips to make business critical decisions. Have your accountant produce monthly management accounts and have them explain exactly what all those statements actually mean, in plain English. Decide together what steps need to be taken to better your business’s financial position and, most importantly, take action.
Catherine Davis is a Chartered Accountant and Managing Director of bookkeeping practice Urban Ledgers Limited.