In a time long ago, when bookkeeping was born, things were slow paced and measured. There was time to contemplate and consider how transactions should be accounted in the books of record.
Today there is no such luxury. Good grief, there is hardly enough time just to capture all the transactions, let alone analyse the impact of how they are allocated! And therein lies the Sword of Damocles for most professionals in practice.
Trusting the numbers
Trusting financial reports just because they are financial reports is a most dangerous undertaking. Simply because the story they tell is only as good as the allocations of the bookkeeper. Many business owners, not only lawyers, are almost held to ransom by their bookkeepers, a behaviour I find strange and always makes me wonder – “what do they know that must not come out?”!
Financial information when it has been properly accounted for in the books, is extremely valuable. It gives insight into where overspending can be reigned in, where there is room to spend more to achieve better returns and so much more.
To use financial information, then, you need to trust the numbers. So where does it go wrong?
Many accounting systems, particularly legacy systems for the legal profession, only provide balance forward accounts receivable processing. While wonderfully quick for a bookkeeper to process a receipt to a client, in time, invoices with which the client had an issue with, are “paid” in this balance brought forward process, yet their balance keeps growing. Tt can take months, if not over a year (or more!) before someone sounds the alarm and then weeks of reconciliations and a very annoyed client before it can be sorted out, if not written off in the interests of good client relationships.
And in the same quick and snappy way that client receipts are haphazardly allocated against a balance brought forward, the same habit creeps in when allocating expenses – “hmmm, internet services, I think I allocated it to Subscriptions last month so lets just put it there again”. Problem here is that the Subscriptions account is used for media subscriptions like newspapers, magazines, etc. whereas the account that the expense should have been allocated to is Communication Costs.
Consistency and Diligence
Now in another month, the same bookkeeper has a bit of extra time and actually scrolls through the list of accounts and allocates the internet services charge to Communication Costs. You can easily see how these financials, which have no consistency or diligence applied, cannot tell the real story about how much the organization is spending on media subscriptions which may be an area to cut costs, or how much is being spent on internet services which may need to be bumped up for better virtual meetings.
How can this be solved?
Well, personally, I would probably let the bookkeeper go, but that’s probably because I know how they should be doing things.
I suppose for a business owner, if under threat of being exposed for some untoward transactions entered to their benefit, they would have to have a discussion with the bookkeeper on making time to reconcile all accounts every quarter. This involves analysing each expense account looking for inconsistent posting and correcting same. Also, this is again if said business owner even knows that this is how to get more trustworthy financial information.
Narrowing the Margins for Error
Modern accounting software does help by providing filtered lists which are proven to improve allocations, but it is those that are unforgiving that have led the charge on sloppy bookkeeping.
But those that offer open item processing are the most merciless, exposing lazy allocations. Money received must be allocated to an invoice or it will sit like a red flag as a credit on the age analysis until it is dealt with properly.
And most recently AI and machine learning built into accounting systems automatically allocate transactions consistently and intelligently. Most importantly though, this functionality, when used in our legal practice management solutions, takes away a lot of the tedious time-consuming grunt work of the bookkeeping staff, freeing them up to analyse financial information and be able to motivate solutions to the businesses problem areas or recommend actions to accelerate business performance.
About the Author
Jenny Assheton-Smith is a BCom graduate in business information systems. Jenny has 30 years’ experience in using technology to re-engineer business processes and has worked with some of South Africa’s most well-known medium to large organisations involved in construction, services, healthcare, engineering, shipping and most recently, legal practice.
Jenny has regularly delivered guest lectures to final year BCom, BBusSc and Computer Science undergraduates and honours students on the practicalities of designing, implementing and supporting end-to-end business productivity solutions.
Having been an executive manager of large technology firms and an entrepreneur herself, Jenny has also mentored and developed several executive teams, entrepreneurs, young business analysts and software engineers.
Jenny has extensive experience working internationally with partners and clients to effectively select, implement and manage solutions and technology that have added enormous value (and profit to the bottom line) and deliver excellent return on investment. This experience, and through her quest to find a modern, simple, effective, yet robust solution to manage a busy legal practice, drove her to co-found Drive Revenue, which has developed an end-to-end cloud application for legal practices worldwide.