Here are 3 common problems I’ve seen over years of reviewing financial statements. It’s well worth the effort to get these right:
- Gross Profit calculation: it’s common to not include all of the direct costs required to deliver a product or service. Often, direct labor is missing – and lumped in with other payroll – or understated. The loss of quality Gross Profit information can lead to underpricing, hiding productivity challenges and making poor prioritization decisions.
- Project costs: real time or daily time tracking by person by project is the only accurate way to capture hours actually spent. Many companies require this information weekly, or worse, monthly. I can barely remember what I did this morning let alone last week so why is it okay to do this? Inaccurate information may lead you to make poor decisions and/or deceive your customers. Not a good path to follow.
- Liability recognition: all material liabilities belong on the Balance Sheet. A no-brainer, right? Well, creative thinkers are all around us and any auditor can tell you stories of liabilities that someone rationalized as not being necessary to recognize. Strictly internal statements damage only you but as soon as you share them with banks, investors, partners and government, you are risking more.
You don’t have to be an accountant to use common sense to get these processes where they need to be.
Demand accurate accounting….. and grow!