“I don’t understand how I lost money this month!”
echoed the frustrated and confused president to us.

I had just picked up him as a new client.  The monthly financials had just been delivered by the outside CPA.  It showed he had lost significant money that month, over 15% of sales.  What made it strange is that in the prior two months, on roughly the same sales volume, the financials showed his firm made over 15% on sales.

When your bottom line numbers fluctuate wildly month to month and it doesn’t make sense, it might not be you.  It could be a sign- something may be badly off in your monthly accounting.  Your gut intuition may be more correct than the numbers.

 
In 70% of the smaller business financials we see, the numbers are incorrect in some material way.  That’s a staggering number, but not unlike what we have heard from other organizations such as Crown Financial Ministries.

 
This new client was a distributor of health services products.  There were really two key areas to their monthly expenses.  First, how much did they spend on inventory they sold?  Secondly, what was their level of spending for outside services, since they outsourced technology and other major functions?

 
It turned out they had very poor cutoffs on bills from outside suppliers for their inventory purchases.  If a major bill did not arrive, they would show artificially low purchases for the month, which would lead to lower cost of sales and higher margins.  When the missing bill came in a month or two later, purchases for that month were overstated, which meant cost of sales would be overstated and what should have been income for the month could turn into a loss.

 
We put in tests for missing purchases and when an invoice was missing, we would accrue for that invoice in the financials that month.  The client could now have confidence in the gross margins reported in the profit and loss statement.   The wild fluctuations were a thing of the past.  We also went back through the earlier months of the year and restated the numbers.  As the president had expected, he did make money in the couple months were losses had been shown.

 
If the highs seem too high and the lows seem too low, it might not be the business,
it might be the accounting.  
It could be a good time to bring in an outside view and straighten out the lens.