Just because a small or medium size company has $100,000 in the bank doesn't mean it is making money, says one numbers specialist here.

And just because a company is short on cash in the bank account, doesn't mean it isn't making a profit.

What it means is that a CPA is needed to provide the high level analysis that is needed to know exactly what is happening with the company, when it comes to the books.

Although Rolston Anglin is best known as a Member of the Legislative Assembly, (MLA) for the District of West Bay and a member of the opposition United Democratic Party, (UDP), he is also the Director of Anglin, Ebanks & Associates, which specialises in outsourced financial controller services to small and medium size local companies.

Mr Anglin said that over the last several years it is still surprising to see how many well-established companies do not prepare financial statements or accounts of any kind.

"A lot of companies do not address it until they need to get a bank loan," said Mr Anglin. "Then you have to come in and go back through two and three years of bank statements and files and this and that, to get the accounts done."

He pointed out that firms were doing themselves no favours by neglecting their books.

"It really is in a company's self interest to get a professional to help do their accounts - so you can see the big picture of where the business is at," he said.

Mr Anglin explained that popular accounting software packages such as QuickBooks can provide a good foundation for bookkeeping. But problems can sometimes arise when an owner or bookkeeper presses a button to produce financial statements and believes that is all they will need.

One common mistake he noted, is that depreciation is calculated incorrectly. An experienced certified accountant looks for things that are out of place such as Accounts Receivables or Accounts Payables that are too high.

Another issue with small companies is that it is difficult to provide segregation of duties.

"One bookkeeper does the entire gambit of duties, in-puts the invoices, writes the cheques, receives payments bank reconciliation, filing and opening mail. All companies need some segregation of duties. When you outsource a financial controller, you can split those duties," he added.

Furthermore, a financial controller can see the bigger picture and put it all together. They can also help develop a budget and perform the ratio analysis to find out what is actually contributing to the bottom line, and what is inflating expenses.

Although a company maybe growing to the point where it needs a financial controller, it has gone beyond the bookkeeper services, but it may not be big enough to afford a full time accountant to provide those services.

Mr Anglin stated that outsourcing the financial controller services is a growing market niche in this jurisdiction.

According to Mr Anglin a classic mistake that numerous entrepreneurs make is they have a good business idea and start a business while they are still working another job.

The company opens with one or two employees and within a few months it is doing very well and the money is coming in. As a result then the owner believes the company can support him and quits his job.

Mr Anglin explained that what the owner doesn't know is that there is initial interest in the service or product and a lot of people try it because it is new. But after six months, customers may lose interest or other competitors catch up.

The business may appear to be making money, but the truth is, it is untested over time. The owner then becomes a drain on the company's finances, because he or she left their job too soon, he said.

Another common mistake that Mr Anglin talked about is hiring too many people on staff. Salaries and benefits that support a fulltime employee are expensive, he said, advising that it is important to make sure the staffing ratios are appropriate for the industry or business.

He said that ratio analysis is a vital part of looking at the high level figures. However, industry ratios in the Cayman Islands are not available.

Using industry ratios from the United States may be easy enough, but he warned that they are also not always appropriate to this country, because it is a different environment and cost-structure.

For instance when looking at restaurant statistics and comparing them to Miami - the cost of labour or unions may make it difficult to compare the jurisdictions properly.

He explained that an experienced financial controller is going to be aware of what staffing ratios should be even with the lack of industry data.

"Generally, if there is a problem it is obvious after doing the financial and ratio analysis," noted Mr Anglin.

Another problem area he said is taking too much working capital out of the account because a business owner sees the bank account has what looks like a high balance.

"What you need to know is, that just because you see $100,000 in the bank doesn't mean the business won't need it. If you are in retail, you will want to have at least 60 days operating capital so that later you won't have an overdraft," he added.

For example a client may have five businesses; four are in the same industry and one in an unrelated industry. After doing the financial analysis, two companies were making a loss, two were showing good performance and one was a cash cow.

What was not obvious was that one company was servicing the other two entities. It is doing all the ordering for another company, but the inventory expense was not transferred across to the other company.

Consequently one company was showing higher profits while the other companies were showing inflated profits.

The initial analysis may point to closing down the companies that are losing money. But that is not necessarily the case either. When Mr Anglin discussed it further with the owner, it was determined that one company losing money had exceptional name recognition that supported the other three related companies.

"It was really considered the flagship company and therefore it was important to keep it going. The owner decided that it was important for the rest of the business for it to stay open. And that is the truth behind the numbers," he said.

"We are not just bean counters, but professional accountants that provide business to assist owners in making good decisions," he added.

shurna@caymannetnews.com