A relatively new wholesale distribution company. In business for only one year but growing at a very rapid pace.
The part-time Partner began spending more time on the bookkeeping side of the business in order to gain control of the situation. As they weren’t completely familiar with QuickBooks, they did not know how to correctly adjust some of the entries which they knew were incorrect. Unfortunately, some of these corrections artificially inflated the sales numbers. The inventory assets also hadn’t been set up correctly and the cost of each sale was also not flowing through to the income statement correctly, resulting in a larger gross profit than was actually being generated. Based on the numbers they had generated from QuickBooks, they made the decision for the part-time Partner to quit their full-time job and focus solely on this new business. Based on these numbers and the surplus cash flow, they also increasingly started taking money out of the business to pay themselves bonuses.
The owners of this business now know their actual gross profit margin. They have this information for each of their products and now know which are their most profitable lines and which they should no longer be carrying. Accounts Payable entries are now completed on a weekly basis, so that they can monitor their cash flow requirements as well as make contingencies for the large balances due on their HST on a quarterly basis. Although they have indicated that had they known the actual figures of their sales and profit margin the owner may not yet have quit their other job, or paid themselves such extravagant bonuses, they now have the information available to them which will allow them to pay themselves only what the business can afford and to make future decisions so that they remain a viable business.
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