There's a conversation I don't forget easily.

A founder came to us. Good business. Busy. Growing. Doing the right things.

When we looked at Xero the numbers said they'd made a loss.

They hadn't.

What had actually happened

When we looked properly, the previous year end hadn't been fully closed off. Some adjustments that should have been posted weren't there. The bookkeeper was doing a solid job keeping things ticking day to day but closing off the year end properly wasn't their area. Nobody had told them what needed to happen and nobody had checked.

The result was accounts that looked like a struggling business.

The real picture was healthy. The difference between what the numbers showed and what was actually true was around £140,000.

One hundred and forty thousand pounds of profit that looked like a loss.

Why this matters beyond one story

That founder had been making decisions based on numbers that weren't right.

Not through any fault of their own. Not because they weren't paying attention. Because they trusted the reports in front of them. Which is exactly what you're supposed to do.

The problem is that a report is only as good as what went into it. And most founders have no way of knowing whether the numbers feeding their reports are complete, accurate and up to date.

Bad data doesn't look like bad data. It looks like a bad business

The year end is not just a filing exercise

This is the bit most founders don't know.

When your financial year closes, there are entries that need to be made to properly reflect what happened. Accruals - costs you've incurred but haven't been invoiced for yet. Prepayments - costs you've paid in advance that belong to next year. Depreciation. Stock adjustments if you hold stock. Corporation Tax provisions.

None of these happen automatically. Someone has to post them.

If you have an external accountant, this is usually done as part of the year end process. But if there's a gap - a change of accountant, a delay in the process, a bookkeeper working without that support, or an old school accountant that doesn’t update Xero - those entries can get missed.

And if they get missed, your profit figure is wrong. Sometimes significantly wrong and it could be either way.

It's not always about the year end

Year end adjustments are the most common cause. But they're not the only one.

Expenses coded to the wrong period. Income recognised too early or too late. Intercompany transactions that haven't been reconciled. VAT entries that don't match the returns.

Any of these can create a gap between what your reports say and what's actually true.

The point isn't to create paranoia about your numbers. It's to make sure someone is asking the right questions.

The questions worth asking

When did someone last review the accounts properly - not just look at them, but check that what's in them is right?

Is your bookkeeper supported at year end or are they working through it alone?

If you changed accountant recently, did anyone check that the previous year was properly closed off before the new one started?

Are there entries in your accounts you don't recognise or understand?

None of these are complicated questions. But they're the ones that catch problems before they become expensive.

What good looks like

Your monthly numbers should be reviewed by someone who understands not just what they show but whether they're showing the right things.

Year end adjustments should be posted before the year end accounts are finalised - not months later when the decisions have already been made.

And when something looks wrong - when the profit figure doesn't match how the business feels, when the numbers don't tell the story you expected - that's worth investigating, not accepting.

The founder in this story trusted the numbers. That's the right instinct. But trust works best when someone has earned it by checking.

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