Money received before it is earned
The software picks a default, and nobody checks which one.
Deposits, prepayments, and gift cards bring in money for work not yet done, and where the software records that money is a choice somebody made once.
Not every business has this problem, and some should leave it alone.
Most of these can be handled better. Whether it's worth doing is a separate question. What follows is one common form of the problem, described in general terms, because your version will differ. These are possible challenges, not a description of your business, and some should be left exactly as they are. If it sounds like your week, that's worth a conversation.
Watch: The Decision Nobody Wrote Down
Sound familiar?
- Deposits show up as income the day they arrive.
- Nobody remembers who set up how gift cards are recorded.
- The accountant fixes the same thing at year end, every year.
- Two systems treat the same kind of payment differently.
What it looks like
A customer pays before the work is done: a deposit, a prepayment, a gift card, a season paid up front. The money is real, but the work it pays for has not happened yet.
The software records it somewhere. Some systems treat it as income by default. Others ask where it should go. Either way, a choice was made when the system was set up, often by whoever set it up, and it has been applied silently ever since.
What it costs
Nobody can see what the setting does. Whether the current treatment is right is the accountant's question, and they can only ask it if they know what the setting is.
The fix happens late, and by hand. Somebody corrects it at year end, from memory and exports, and the correction does not change how the next payment is recorded.
Nobody can say what the setting is. The choice was made once and never written down. When a question comes up, the answer has to be rebuilt from the software's settings.
Where it goes wrong
- The default was never checked. The system was set up and started working. Nobody asked what it did with money paid in advance.
- Each system decides differently. A booking tool and the accounting system may handle the same deposit in opposite ways.
- The correction is not recorded. The year-end fix is made, but nobody writes down why.
- Nobody owns the question. The owner assumes the accountant handles it. The accountant sees it once a year.
What a better version looks like
Each kind of money that arrives before the work is listed once: what it is, which system receives it, and where that system records it. The list is written in plain language and handed to the accountant, who decides whether each one is right.
The list does not decide anything. It makes the silent choice visible, so the right person can rule on it.
What still needs a person
The accountant or advisor decides how each kind of payment should be recorded. That decision is theirs, not the list's. A person keeps the list current when a new payment type or a new system is added.
Questions worth asking about your own operation
- Which payments do you take before the work is done?
- Where does each one land in the books when it arrives?
- Who chose that, and is it written down?
- Does your accountant correct the same thing every year?
If this sounds familiar
Bring me the version you actually have. I'll learn how the process really works before I suggest anything. If it isn't worth changing, or isn't a fit for me, I'll say so. Talk through a problem