Saturday, 8 May 2010

Accountancy in a new Government

After yesterday's election in the UK very little is settled but it is clear that we will have a new government because the Labour Party no longer has a majority in the House of Commons. The result that we at the Accounting and Bookkeeping College are delighted with is that very many more people turned out to vote reversing the trend of previous elections.

Apparently all parties agree, to a greater or lesser extent, that the priority for the new administration will be to ensure financial stability through careful and prudent management of the economy. Margaret Thatcher famously likened herself running the British economy to a housewife managing a family's purse. Mrs Thatcher was over-simplifying the case in order to appeal to the electorate, housewives presumably, but it would be fair to make the comparison with a business. Like countries, many businesses borrow money to finance their activities and rely on the continuing availability of loans to avoid going bust. Banks will continue to provide facilities as long as there is a profitable return on their balance of risk and reward. Apart from looking at the borrower's track record of repaying loans in the past, the lender's best source of information about a customer is their accounts and cashflow projections.

The United Kingdom doesn't produce financial statements in quite the same form as a business but in both cases it should be possible to tell whether funds are being generated to meet liabilities. Our next Prime Minister and Chancellor of the Exchequer will need to be adept at producing persuasive figures for the bond markets that finance our national debt. Similarly, every business with an overdraft needs to maintain accurate accounts to show the bank manager. If the new government fails to convince its creditors we could face a crisis of Greek proportions. If your business is equally unconvincing then it will join the record numbers that are facing insolvency.

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