The deadline for filing Corporate Tax Returns for FY 2008-9 in India, September 30, 2009, just passed by. This date was known a year back.
Many businesses did not file the returns on time, and would be paying late/penalty fees!
Accountants and Business Owners “know” about this deadline much in advance. But, the balance sheet is finalized on the last day, after days of frenetic late night error fixing by the accounting team and auditors. If you have a relatively large-volume business, the COST of such an approach could be HUGE, for example:
- Loss of productive business hours during those error-rectification days.
- Money bled away in delayed identification of missed payment discounts, unaccounted material returns and other disputes in supplier accounts (Large companies outsource “bill and payment checking” work to ensure benefits like payment discounts are recovered before it is too late).
- Similar losses in non-resolution of disputed amounts in customers’ ledgers.
- Similar ‘bleed’ in expense accounts, bank/institutional charges, overcharging/errors in overheads like electricity bills, etc.
So, why do businesses indulge in such last minute rush to reconcile accounts? Why the Student Syndrome? Why study the night before the day of your exam?
Standard “excuse” is that the handling day-to-day emergencies or crises rarely leaves time for setting up and improving systems!
You do need a huge amount of self-discipline to take out time to move towards streamlined operations.
Therefore, it is necessary to make someone accountable for setting-up error free accounting systems and commit one or more dedicated resource for that. This is much cheaper than losing money in ledger errors and wasting resources in last minute adjustments.
To have error-free Accounting Systems, you need to break the student syndrome. Stop studying the night before the day of your exam (which might work for solopreneurs or a low-volume business, but a disaster for a business having significant number of transactions every day)!
Start by creating an Accounting Operations Manual – begin with simple checklists to ensure accounts are tallied every month, for example:
- Synchronize Bank Account Statements with your ledger balances every month. Make the necessary journal entries to book/resolve bank charges and other deviations.
- Compare & reconcile Ledgers with suppliers and customers every month and file-off synchronized ledgers – so that you do not start all over again. (If you are using digital formats like spreadsheets, convert them to PDF to avoid tampering).
- Ensure that there is a well-defined Petty Cash & Expense Policy that published to all concerned and clear instructions on penalty for non-adherence (for example, deadlines for submitting travel vouchers)
Last, but not the least, analyze the SOURCE of accounting errors and deviations specific to your business – that will tell where you MUST have well-documented processes.