Protect Your Business: Understanding “Cooking the Books”
For some of you youngsters, it must make no sense at all. Why is it called “doing the books”? Well, not that long ago, when I started, PCs were only just happening. Not that long ago, Business Owners hand-wrote their books. They had cheque-books and cheque-butts, which they wrote on the butt of what that cheque was for. And the cheque went off in the mail and eventually got to where it was supposed to be, eventually got banked in the bank. And then, it would show up on your bank statement. “Doing the books” was writing up into a book, what your money had been spent on, what money had come in.
And so “doing the books” was the label that we had for getting your accounting information ready. Also, from that book’s idea comes “cooking the books”. “Cooking the books” is about actually recording the information incorrectly, that might involve stealing money out of that business. Unfortunately, I’ve heard of a number of Bookkeepers that have stolen money from Business Owners, without them realising they’re “cooking the books”.
It doesn’t matter whether it’s handwritten or into our modern computers, doing the bookkeeping is a very important part of a business. The Business Owner needs to check over the books, properties. It was easy when I was a ledger book and you could just look at it, make sense of it and say, “yep, that looks good enough”.
Now you’ve got to look inside the computer. How do you do that? It’s confused a lot of people and it’s made a lot of people scared. And a lot of Business Owners, abdicate that. They’re like, ”Whoa, that’s someone else’s job. I don’t understand it. It’s got nothing to do with me.”. It’s got everything to do with you.
The books tell the story of your business and no matter how they’re getting into the computer and no matter what reports are coming out of the computer, that is a wealth of information for you. So, be careful. Like I said earlier, I’m from the time when there were books and even then, back in the fifties, sixties….Actually I finished school in the eighties, I’m not that old. There was a saying about computers when, when computers took up the whole room. – they said “to err is human, but to really foul things up, takes a computer”.
Now I think these days we use a different F word, but it can get really fouled up, really fouled up in your computer because things happen these days. It’s fantastic. It’s all automated. And the bank feed comes in and the software decides based on all sorts of statistical observation. The fuel docket comes in – no, I’ll rephrase that.. Something comes in from Smith Proprietary Limited, and the computer might assume that’s for petrol because there’s this other Smith Pty Ltd that everybody has stuff for that’s for petrol, but maybe it’s marketing, maybe it’s for something else.
Maybe the interface between that data coming in automatically, and the way it’s recorded in your business books, isn’t being properly observed. I mean, if you’ve just, offshored your bookkeeping – who set the rules? Who decided what goes where? Back when we had cheque butts, we decided: this is for fuel, this is for dog food, whatever.
Now that interface isn’t so much there and a business owner, more than ever, needs to look at the output of the books. The output is your profit and loss statement, your balance sheet. It’s really important to get to understand them and look at them regularly, which is another topic on one of my other Better Business Insights. Reach out if we can help in any way. Reach out through our social media, through our website. We’d love to hear from you because we want Business Owners to be able to make better business decisions using their financial information.
Have a fantastic day. See you next time!
Are you a business owner that isn’t really sure about bookkeeping? Well you certainly are not alone. The problem is without a base understanding of what ” doing the books” is all about you may be leaving money on the table! To help you to understand, I explore some of the terminology of the past and the transformation to the tools we have now. Be sure you are protected from unscrupulous people stealing form your business by having a better understanding of how that could happen.
