INSIGHTS ON RUNNING YOUR NUMBERS
Your profit and loss account is only as reliable as the balance sheet beneath it. If the balance sheet is wrong, no amount of analysis on the P&L will tell you what is really happening in the business — or whether you are genuinely on track against your goals.
One common bookkeeping issue is something sometimes referred to as a “dangling debit” or a financial “black hole.” This happens when costs incorrectly accumulate in balance sheet accounts instead of being recognised in the P&L where they belong.
The result is distorted reporting. Profitability appears stronger than it really is, cash expectations become disconnected from reality, and management decisions start being made using incomplete information.
This often happens when balance sheet accounts are not regularly reviewed. Sometimes the focus is entirely on producing monthly P&Ls. Sometimes it reflects gaps in experience, training, or ownership of the numbers.
At first everything appears fine. The business looks profitable. Targets appear achievable.
Then year-end arrives and adjustments begin appearing through the accounts process. Suddenly the expected result changes dramatically — and decisions made throughout the year are viewed in a very different light.
Would the business have been run differently with accurate numbers? Almost certainly.
Maybe a hire would have been delayed. Maybe a capital investment would have been postponed. Maybe margin issues would have been addressed earlier before they compounded.
Running a business on inaccurate numbers is like navigating with the wrong map. Everything can appear perfectly logical — right up until you realise you have ended up in the wrong destination entirely.