Started a retail business with a friend several years ago but was not involved in the day to day running of it. I am now a part of it. The problem is there are no inventory records (no beginning or ending) apart from the purchases invoices, no receipts for sales, sales deposited without a breakdown of what was sold. Money was also used from sales to take care of bills.

1. How do I know what should be in the shop?
2. If we are making profit?
3. How do I clean this up?

Help please

The best you can do is try to build up a statement of affairs as at the present date.

1. You have the purchase invoices, so you can draw up a list of inventory purchased: item, quantity, cost. Then do an inventory count of what is actually in the shop as of right now and between the two lists, you can draw up a list of what has been sold.

2. This is trickier. Using your list of what has been sold, you can work out what the value of total sales for each item is, and overall total sales. The purchase invoices tell you what the cost of the items was, so you can deduce what the gross profit should be from that (total sales - total cost of purchases sold). You'll need to then somehow draw up a list of all expenses paid which will mean trying to find receipts, trawling through bank statements to pick them all out and classify them into things like utilities, rent, phone bill and whatnot. Once you've got that, then take the total of that from gross profit to give you your net profit (or loss).

That gives you an idea of how things ought to be. But none of it takes account of missing purchase invoices or receipts for payments for whatever, so you'll need to analyse the bank account to try and see if what has been deposited matches with what has been sold. You've said bills have been paid out of sales takings, so you need to try to identify which bills were paid out before whatever sales deposit was made to try and tally it back to what the deposit would've been if nothing had been paid out from it (so that it matches the sales figure). Same with payments made from the bank account - try to match them back to whatever it is that's been paid.

At the end of all that, you're probably going to have things unaccounted for and no way to account for them either. but it's the best you can do. A discrepancy between sales against sales deposited + bills paid out of sales before depositing, might indicate pilferage of goods, but in the absence of complete records, you don't really know.

3. Going forward, at the very least you need to keep records of receipts and payments for everything, backed up by invoices/receipts for purchases/payments, a cash roll for sales, and do an inventory count regularly - at the end of each week/month/quarterly, you'll be the best judge of how often is necessary. If you pay suppliers on account, get statements from them and reconcile them to the bank account to help keep track of your cash flows.

At the end of the day, what you're trying to achieve is knowing whether or not your business is making you any money, and the only way to do that is to have a record of every transaction that takes place.

Aside from all that good advice:
- Have a sale to reduce inventory
- Take inventory
- Assign the day after inventory to be the new 'start day,' upon which all procedures for doing it right are all implemented.

Then you can work on the past mess at your leisure.
You may not know how much inventory to order for a while, so will have to wing it based on intuition.