Accounting

The most common warning signs that your hospitality finances are slipping into dangerous territory.

People rarely switch accountants when things run smoothly. And as the finance team for 40+ businesses with a combined annual turnover of over half a billion pounds, we’ve seen all kinds of finance red flags during onboarding.

Most new clients come to us needing a fix. These include late accounts, stressed teams, missing information, and handovers that reveal more problems than expected.

Here are some common red flags we see in hospitality finance. If any of this sounds familiar, it may be time to get help. You can always fix these issues, but the sooner you act, the better.

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1. Debit balances on your creditors ledger

Your creditors ledger is a list of what you owe suppliers. Most of the time, those balances should be credits because you haven’t paid them yet.  

If you start seeing debit balances, you might want to investigate. This often happens when payments are posted without matching invoices. The costs are hidden rather than recognised, making your profits look better than they really are.

A few small debit balances aren’t unusual if they’re recent and someone knows why they’re there and how they’ll be cleared.

Bigger issues show up when individual suppliers are in an overall debit position, or worse, when the whole creditors ledger is in debit. That means you’ve overpaid suppliers and need to get money back, or costs are missing and your profits aren’t accurate.

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2. Late accounts

If monthly accounts take more than 8 days to arrive, that’s not ideal. But waiting months is a big problem. Late accounts make it hard to spot issues, control cash, or make good decisions because you’re always working with old information.

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3. Large balances in your cash in transit accounts

Your cash in transit (CIT) account should only hold a couple of days of sales. Large balances suggest bank postings aren’t reconciled, or cash isn’t reaching the bank. Either way, transactions aren’t flowing properly, and the accounts can’t be relied on.

Here’s how it should work:

• Sales happen: Credit in sales, debit in CIT.  
• Cash arrives at the bank a few days later: debit in the bank, credit in CIT.
• Reconcile: CIT clears once the entries match.  
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4. Deposits and gift cards in a debit balance

Deposits and gift cards should usually be credits, because customers pay you before they receive anything.

If they show as a debit balance, it often means the sale has been recorded twice. Once when the voucher or deposit was sold, and again when it was used. This is a common mistake in hospitality and makes sales look higher than they really are.
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5. Big suspense account postings that hang around

A suspense account is where you hide put unknown transactions while you’re waiting to find out what they are.

It’s supposed to be a short-term placeholder. If large balances sit there for a long time, it usually means poor processes and increases the risk of mistakes or misuse.
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6. Intercompany balances don’t reconcile

If you own two companies, money sent between them should match on both sides. For example, if Company A sends £100 to Company B:

• Company A should show a £100 debit with Company B.
• Company B should show a £100 credit with Company A.

All intercompany balances should equal zero. If they don’t, one company thinks it’s owed money while the other thinks it’s paid.  

Balances that don’t reconcile usually happen in manual systems where journals aren’t automatically posted to both companies. Manual posting takes time and often leads to mistakes, which software like Xledger can avoid by handling intercompany postings automatically.
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7. Accruals showing a debit balance

Accruals let you record expenses in the month they happen, even if you haven’t received the invoice yet. Usually, accruals have a credit balance because the expense is already in your P&L, and the accrual holds it until the invoice arrives. When the invoice comes in, it’s matched to the accrual, so your charges appear in the right period.

If you see a debit balance in the accrual, something isn’t right. It might be a prepayment entered by mistake, which isn’t a big issue, or it could mean an expense was recorded without an accrual, which is more serious. Either way, it should be checked.

During onboarding, we review your accruals and point out any issues to help keep your accounts accurate.
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8. Prepayments that aren’t unwinding

Prepayments are the opposite of accruals. You pay first, then recognise the cost over time.

Take insurance as an example: one bill that covers the year ahead. You pay upfront, but the expense gets spread across the next 12 months. So, you hold it in a prepayments account and release a portion to the P&L each month.

But if prepayments aren’t unwound properly, costs stay on the balance sheet instead of being released to the P&L. That’s a problem because if the spent money never shows up as an expense on the P&L, profits look better than they really are.
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9. Suppliers put you on stop

Being put on stop means suppliers refuse to deliver until they’re paid. If this happens unexpectedly, it’s often a sign that something isn’t working in accounts payable.
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10. Running out of money without knowing why

And, this might be obvious, but if you’re dipping into personal funds without understanding why, your cash flow isn’t being tracked properly and needs immediate attention.

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Any of these red flags sounding familiar?

We fix even the biggest finance messes, and after the first month-end, we usually have your accounts running smoothly.  

With an NPS score of 61 (125% above industry average), you’re in good hands.

Talk to us about:  

• Outsourced accounting teams.
• Multi-entity accounting software & setup.  
• Fully managed BACS-approved payroll.

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