#56 Accounting

Let’s talk about accounting. Ugh, how boring right? Wrong.

My perspective on the field of accounting has changed completely since coming to Nicaragua. I graduated with an accounting degree from University of Maryland and for four years straight I too thought of accounting as a relatively boring subject. It wasn’t until I came here and began working with local businesses that I gained an appreciation and respect for my accounting degree and the business knowledge I have because of it.

Very few businesses here have any sort of accounting or record keeping. The majority of businesses have no idea if this past month was a profitable month or not. How is that possible? What is common “business” sense to you is not common sense to everyone. Money and sales are not recorded in any sense of the words, the money comes in, goes into the owners pocket or drawer, and then goes out the same way. If you need money for groceries, bills, or business supplies, you reach into that same pocket. If at the end of the day you can still pay your staff and are not going to sleep hungry then you have had a successful day.

Unfortunately, that is not how business works. Many of these owners have several income generating businesses and all the money goes into the same pocket. The family I live with has the following sources of income: Hotel rooms (short term and long term), homemade ice creams, fresh fruit juices, a restaurant on weekends, and even a mechanic shop. What are the chances that all these businesses are profitable and that all the products (thinking about all the various costs) are sold with a profit if not one of the businesses uses any system of accounting? 

I spend a fair amount of time teaching business owners about accounting, its importance, and ease (we use a very basic level of accounting). This allows many of these businesses, many having been in business for up to 30 years, to see their income for the first time. Together, we understand all the costs for each individual product (ex. chicken plate for dinner = chicken, seasoning/spices, wood/coal for grill, gas, rice, beans, oil, vegetables, (etc…) and a percentage of all the fixed costs) then bump up the price and reset the old price for the new one.

Many owners have been using the same prices for years, not adjusting for rises in costs. Last week I had a meeting and because an owner was concerned with her accounting and wanted my help. A community-run restaurant has 13 different employees who work alternating shifts during the week. Each employee records the transactions during their shift. However, each does so in their own record book, in their own style, not one with any accounting knowledge, and a few can not read nor write. The first thing I did was picked a random transaction out and found that the juice boxes they buy in packs of 24 are being sold at a loss when sold individually. Every juice box sold results in a loss because they have not updated prices as costs have risen. At the same time, so many other businesses are selling this juice box for this same at-a-loss price that I know that each of them are losing money as well.

A hostel around the corner solicited my help with their accounting the other day and they are using excel spreadsheets to record transactions – purchases, daily income, payroll, and a monthly summary. Here again, the very first transaction I picked I had found an error when copying the total income from the daily income spreadsheet to the monthly report simply (not simply at all) because the user wasn’t using excel’s formulas.

Luckily for me, when the first things you choose at random are erroneous and you can clearly explain an easy solution, you are given immediate respect and free rein to make the necessary changes - a process that can take months because in the Nicaraguan culture a solid foundation of trust must be establish before you can point out more efficient methods for their businesses. In the first example, I gave the community leader tables with [Date] [Description of transaction] [Sale] [Purchase] [Total] as headers and the responsibility to teach her employees how to fill in each line as a separate transaction. Next, for the hotel, I built them an easy to understand flowing excel workbook so if he enters in one transaction, he only needs to do so once and it goes in all the right places.

My perspective of accounting has changed in recent months from a boring dull field to a wonderfully helpful tool so vital to a business. Business owners here really love accounting as it is their opportunity to see how much money their businesses generate and areas they can improve upon. Many become giddy and excited the first time we are able to price out their products and truly think it is the coolest thing. Needless to say, these reactions may have influenced my opinion.