Accounting is an administrative exercise for taxation purposes only

George operates a marketing and advertising business that has been growing rapidly.  He was expanding his services to include social media advertising.  He has some marquis clients that were a significant part of his business and he was proud of his celebrity network as he rapidly gained prominence.  He was keen to go beyond having a services-based business and wanted to expand his business to include an inhouse production company – his desire was to provide end-to-end services from helping clients define their brands, formulate marketing strategies, design marketing campaigns, produce advertising and then guiding sales strategies and funnel management.

As he started to build this portfolio of services and establish his production company, George’s sales grew fourfold but his profits did not follow the same path – they actually declined.  George only found this out when his external accountant informed him that his cash flow issues stemmed from him having an unprofitable year. George called his bookkeeper in to understand what was going wrong, but they could not provide any insight – his accountant reminded him that record keeping was really focused on providing information to the external accountant for taxation purposes and nothing more. Before, George was only interested in sales – now he wanted more, and the accounting system wasn’t designed to provide him with the information that he wanted.  Was it too late for George to fix his accounting practices?

Get clarity on how your business is performing through better record keeping

George realized that he had underestimated the power of good record keeping.  Although accounting is needed to report income for tax purposes, George realized he could record, classify, categorize and summarize his financial information for each part of his business. He could then retrieve key data on how each part of his business was performing and alongside assigning accountability for financial performance to each business unit manager. Furthermore, he could use financial information to make strategic decisions, elevate certain profitable streams and manage costs better for areas which were not generating large profits.

George realized that accounting generated financial information not just for external users such as investors, lenders, stakeholders, but could also be used to gain transparency over how his business was operating. Equipped with this new knowledge. George expanded his focus from just revenues to include costs as well. George realized that he was accountable for running a profitable business – his clients, suppliers and employees were counting on him .  This motivated him to restructure his financial systems and set himself up for success going forward.

Restructure your accounts to provide better insight into your business.