From the course: Finance Essentials for Small Business

Poor bookkeeping impacts profits

From the course: Finance Essentials for Small Business

Poor bookkeeping impacts profits

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- We have always loved reading the James Herriot stories. - Yes we have. For those of you who've never read them, the James Herriot stories are first person accounts of the life of a country veterinarian in the hills of Yorkshire in England. - James and his volatile, but charming, partner Siefried run the veterinary practice in a pretty loose fashion. They take good care of their clients, the animals, but they're bookkeeping and cash management practices are horrible. - The following is extracted from James Herriot's account of Siegfried's efforts to hire the business's first bookkeeper. This comes from the book, All Creatures Great and Small. Miss Harbottle, the perspective bookkeeper, came into the business office and paused at the desk, which was heaped high with incoming and outgoing bills, with here and there stray boxes of pills and tomes of cow udder ointment. - Stirring distastefully among the mess, she extracted the dog eared old ledger and held it up between finger and thumb. "What is this?" - Siegfried trotted forward, "Oh that's our ledger. "We enter the visits into it from our daybook, "Which is here somewhere." He scrabbled about on the desk, "Ah here it is. "This is where we write the calls as they come in." - She studied the two books for a few minutes with an expression of amazement that gave way to grim humor. She straightened up slowly and spoke patiently. "And where, may I ask, is your cash box?" - "Well, we just stuff it in there you know." Siegfried pointed to the pint pot on the corner of the mantle piece. "Haven't got what you call a proper cash box, "But this does the job all right." - Miss Harbottle looked at the pot with horror. Crumpled checks and notes peeked over the brim at her. Many of their companions had burst out onto the hearth below. "And you mean to say that you go out "And leave the money here day after day?" - "Never seems to come to any harm," Siegfried replied. - "And how about your petty cash?" - Siegfried gave an uneasy giggle. "All in there you know, all cash, petty and otherwise." - Situations similar to the one described here are not unusual for small businesses. How does a business survive with such bad bookkeeping? Some businesses do well in spite of their bookkeeping inefficiencies because they're fundamental business is doing so well, that the inefficiencies stemming from bad record keeping only reduce profits, instead of eliminating them altogether. - But of course, most small businesses do not survive. And poor bookkeeping is a contributor to the demise of many of them. Poor bookkeeping leads to a host of problems, trouble collecting accounts, difficulties with suppliers over late payments, problems getting bank loans because of the inability to prove profitability, inability to assemble reliable cost and revenue data in order to make pricing decisions, and just general inefficient use of time. In addition, poor bookkeeping is often a symptom of a more fundamental laxness, that adversely affects all aspects of the business. - So, let's learn more about the importance of good record keeping and internal controls.

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