Garbage In, Garbage Out (GIGO)

Published 09/16/2024

There is a common phrase from the world of computer science that goes, “Garbage in, garbage out.” 

This phrase is used to express the notion that the output of a system can only be as good in quality as the input into the system. If the input into a system is flawed, then no matter how well designed a program or system may be, the output will also be flawed. 

This phrase applies equally well to bookkeeping. As a professional bookkeeper, I often encounter situations where flaws occur at the input stage, not with the system itself. Business owners sometimes have trouble understanding this, and I’ve had to explain that there is nothing I can do in QuickBooks that will fix the fundamental flaw of bad input. 

So today let’s talk about inputs and outputs, and how we can take a business system from “Garbage in, garbage out” to “Gold in, gold out.”

Garbage In:

How does bad info make its way into a system? There are several ways: misinputs, delays, omissions, and more. Let’s review an example scenario and examine how bad inputs can occur in context. 

Imagine you're in the business of delivering food to grocery stores. You have drivers deliver shipments to customers, who sign a printed invoice at the time of delivery, and those invoices are returned and attached to the check when the customer sends payment. Take a second to think about how things can go wrong here. 

First of all, if an invoice is printed before being accepted by the customer, it is of vital importance that the customer accepts the entire order exactly as printed on the invoice. But this often doesn’t happen. It is not uncommon for drivers to make partial deliveries and forget some items back at the warehouse. Or maybe the customer refuses to accept certain items due to defects. Or maybe the customer calls after the delivery to complain that there are certain items missing from the order, or that it wasn’t exactly what they wanted. 

Ideally, all of these issues would be sorted out immediately as the delivery is made. But I know from experience that it is common for these issues to only come up after the fact. 

Garbage Out: 

Businesses run into unexpected occurrences all the time, and a certain amount of flexibility is necessary to survive. The problem though, at least from a bookkeeping perspective, is that all of these issues create a mismatch between the books and reality. In the scenarios above, the books will show a certain amount for accounts receivable that the customer will not agree is valid. 

This leads to collections problems, and even worse, it calls into question the validity of your entire accounts receivable. Afterall, if one invoice is proven to be invalid, why couldn’t more invoices be invalid? Accounts receivable is often among the biggest assets a company has, so uncertainty around its actual value is the same as uncertainty about if a business is even viable. It is the difference between a money printer and a money pit.  

Importantly, no amount of bookkeeping savvy can correct for this by itself. The best case scenario here is that good bookkeeping practices will catch the problem early, and then make the correction before it becomes too difficult to undo. But the fact remains that once input is compromised, it is inevitable that your output is compromised. 

Garbage to Gold: 

The good news is that business owners are not powerless in these situations. Foresight and good management practices can lead to updates in procedures that minimize bad input. 

Let’s look again at that example of a business that delivers food to grocery stores. This system requires that invoices be set before the delivery is actually made, so that the invoices can be printed and signed. But it doesn’t have to be this way. With the QuickBooks Online mobile app, invoices can be adjusted at the time of delivery to match whatever is accepted. It is also possible to instruct drivers to make sure that signees count the product they are signing for so that adjustments don’t have to be made later. 

Often when there is a discrepancy between what a customer ordered and what is delivered, it results from imprecision in ordering. A customer may, for example, order 20 pieces of chocolate cake. But what if your company sells different types of chocolate cake? Or perhaps different sizes? 

This kind of problem can be eased by standardization in the ordering process. QuickBooks Online has the ability to add items to the item list with set prices. These items can be very specific, detailing the type and number of each product (or service) sold. When customer orders are standardized, there is less risk of error being input into the system. And while QuickBooks Online is not a Point of Sale system, it can be synced to such systems using apps to streamline the entire process. The platform can even sync to Microsoft Excel sheets if you want customers to order from there. 

But what if all of this isn’t enough? Maybe the nature of your business is so fluid that it is simply not feasible to know what the cost of a good or service will be until it is actually delivered. And maybe for some reason it is not always possible to get signatures/written approvals from the customers at the time of delivery. What can be done then? 

In that case, the best thing a company can do for their books is learn to use estimates. I have known business owners who use estimates and invoices interchangeably. But they are completely different from an accounting perspective. An estimate is not considered an asset like accounts receivable. 

That means that if an estimate has to be modified, or even deleted, then it will not affect the books in any way. In such fluid businesses, it is best to use estimates for all record keeping until such time as a definitive invoice can be created and agreed to by the customer. And fortunately, in QuickBooks Online, an estimate can be turned into an invoice easily with the click of a button! 

Taking Responsibility:

What we have looked at so far will not apply to every small business. Entrepreneurs all have their unique obstacles to face. 

But the point is this: the business systems and procedures you put in place WILL affect the quality of the books. 

As a small business owner, it is your responsibility to set yourself up for success. A smart bookkeeper can let you know what tools are available to you, but it is ultimately on you to ensure that good data is going into the books. 

If you’re putting garbage in, you will ALWAYS get garbage out. But if you implement smart procedures and put gold in, then your bookkeeper can give you gold back. 

I hope this was helpful to all you small business people looking to better understand bookkeeping and finance. 

If you still have questions, I’d be happy to help with a FREE consultation. Just contact me by clicking here!