In my last post, I stated that you get what you pay for when you use flat $100 a month bookkeeping services. I’d like to give you an example of how using such a service can keep you from knowing that your company is experiencing a loss, which may prevent you from making changes in time that could mitigate your losses.
(Caveat: whenever I tell a story about a client or prospect, I change the facts in the story to protect the confidentiality of the client.)
In December 2006, I met with a prospect who had recently discovered that his construction company was going to lose money for the year.
This person opened his company in March 2006. His firm built custom enclosed decks with accessories such as hot tubs, grills, and entertainment centers. Between July and October of 2006, he built eleven custom decks. In September, the owner became very uncomfortable with the financial performance of his company. He was particularly concerned with the material and subcontractor costs that were running over budget. (As a construction company CFO, I learned to listen to the gut feelings of project manager/owners. Most of the time, their intuition is the first sign that a job has started to go bad or lose money.)
Each month, he was presented with a profit and loss from the accounting system the bookkeeping service used. In September and October, the financials showed that the firm was showing a profit. Several times during September and October, the owner asked the bookkeeping service to verify that the profit was accurate. He was repeatedly assured him that profit being reported was correct. Through October, the company was showing approximately a $3,000 profit.
In mid-December, the bookkeeping service presented him with the November P&L. The owner was shocked to see that for the year he had lost $7,000.
This is when the owner called to me to schedule a meeting. In our meeting, he requested that I prepare a set of financial statements so he could see what the actual financial performance if his company was.
I’ll finish this story in my next post.