Bookkeeping is a large component of the finance and accounting department of a business. What Does a Bookkeeper Do? Primarily, bookkeepers are responsible for managing and recording the day-to-day financial transactions of the business; ensuring accounts and records are accurate and complete. Financial transactions include operational expenses, sales, earned revenue, payroll, payment of taxes, earned interest, loans and investments.
A bookkeeper’s role may vary depending on the size and nature of the company. Smaller companies that do not employ an accountant, require more extensive duties from a bookkeeper. At minimum, the bookkeeper is responsible for processing the paperwork for a company’s transactions. This entails getting the information quickly and accurately recorded in the company’s general ledger accounts. Also, bookkeepers provide full back-office support. For instance, processing invoices, paying bills, managing cash, billing and following up on accounts receivable, reconciling account balances, adjusting entries, and processing payroll.
Bookkeepers record the company’s activities in financial statements which display the financial performance of the company. The statements focus on specific parts of a company’s financial activities, such as cash flow, assets or earned revenue and connected expenses. Some small business bookkeepers use paper ledgers and journals to record financial transactions. However, most businesses prefer their bookkeeping be a cloud-based program or system. Bookkeeping and accounting software simplify record keeping while being more cost efficient and making it possible for small businesses with little staff or resources to build and maintain comprehensive bookkeeping systems.
Consultance Accounting leverages exceptional talent, proven processes, and top technology platforms to deliver timely and accurate financial solutions that help small and medium-sized organizations improve productivity, increase profitability, and achieve their goals.
A Prescription for Better Cash-Flow Management (Part 2)
Note: This article is the second in a two-part series on achieving better/ improving cash flow for your business or nonprofit organization/association. See the first article here, which defines Cash Flow and why it’s important to understand, as well as how to do Cash Flow Projections.
How to Improve Cash Flow?
To manage your business or nonprofit organization’s cash flow better, look for opportunities to improve the timing of money going in and out of your operations. Let’s dive deeper into potential action steps to consider:
Faster Cash Inflows
Consider the following ideas to achieve better cash inflows:
• Faster payments from customers, clients and members – assess reasons for delays in payments, reimbursements and other balances due, and identify ways to achieve more efficient receipts, such as e-payments. Incentivize those who owe you to make prompt payments by charging penalties for late payments.
• Diversify your revenue streams so that you aren’t relying on just one source of income.
• Make sure your billings process is effective and efficient to avoid delays in invoicing and following up with late payers.
• Assess your payment terms for refinement opportunities.
Slower Cash Outflows
Slow down your cash outflows by considering the following:
• Delay big purchases when your anticipated cash inflows are low. Before deciding on big investments, take the time to assess whether the expense will add significant value to the practice.
• Consider obtaining a line of credit or short-term loan to spread the cost of big-ticket items over a period of time. Make sure you do your research to identify the best loan rates and terms. (For more info on Business Lines of Credit, see this Nav article at https://bit.ly/2K4M05j.)
• Determine whether it’s better to lease vs. buy assets.
• If you already have some short- and/or long-term loans, look for opportunities to consolidate your debt at a more attractive interest rate.
• Analyze your inventory turnover rates and avoid carrying too much inventory on the books.
• Identify your fixed costs and prioritize them.
• Look for ways to cut discretionary expenses.
As noted in last month’s article, it’s a good idea to first understand your current cash flows and project your future monthly cash flows, since that will give you some good insights as to where the opportunities may lie within your business/organization.
Understanding your cash flows and taking action to improve them will enable you to sustain unexpected challenges and help you to build a successful business/organization.
Need Help?
If you have questions and/or would like to understand more about Improving Your Cash Flow, please reach out to me, I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
How to Achieve Better Cash Flow Management (Part 1)
Note: This article is the first in a two-part series on achieving better/ improve cash flow for your business or nonprofit organization/association. Next month’s article will cover specific strategies to improve your cash flows.
According to a CBInsights study, running out of cash is the second highest reason why startups fail. To improve cash flow and prevent this from happening to your new business/organization, it’s important to manage your cash flow efficiently. So let’s first cover some basics about cash flow.
What Is Cash Flow?
Cash flow is the money you have available at any given point in time. This balance represents the money flowing in and out from your day-to-day operations. Inflows of cash can come from customer/client/member fees received, point-of-sales receipts, and program income. Outflows include vendor payments, rent or mortgage payments, payroll as well as owner distributions and tax payments.
How Is Cash Flow Different than Profitability?
Many business owners fail to distinguish between cash flow and profitability. While cash flow relates to the actual money coming in and out of your company, profitability relates to the amount of revenues left after deducting all expenses. It’s great if your company is profitable, but you can still have major issues if you don’t have the money available to pay your obligations when they are actually due. This may occur if you hold accounts receivables (A/R) related to those revenues earned. So a practical challenge exists if your A/R collections take too long and bills come due before money is available in the bank.
How Do Cash Flow Problems Occur?
Cash flow problems often are caused by timing issues. Regardless of your company’s overall profitability, your available cash balance can fluctuate greatly based on when your money is actually received and paid out of your bank account. If your services and/or sales revenues are cyclical in nature, it may be difficult to cover your regular monthly bills during the “down” revenue cycles. That’s why the timing of your cash inflows and outflows are important to understand.
On the other hand, your cash flow problems could be a sign of a deeper issue with your company’s profitability. That’s why it’s important to review and understand your financial statements, to see if you need to improve your bottom line by increasing revenues and/or reducing expenses. See my article for an example of how to address your profitability risk.
Understand Your Current Cash Flows
To achieve better cash flow management in the future, you’ve got to understand your current cash flows. For a non-accountant this may be a little daunting, but it’s essentially a simple equation:
Project Your Future Cash Flows
Once you start tracking your cash inflows and outflows, you’ll begin to get a sense of any cyclical trends. This will help you to do the next step, of forecasting your future cash flows. By forecasting, you’ll can anticipate your cash requirements, helping you to see months where you expect deficits (more cash paid out than received) and surpluses (more cash received than paid out).
Cash Forecast Tools
Users of QuickBooks can create a Cash Flow Forecast Report using the Reports feature, and there are apps available that integrate seamlessly with QuickBooks, such as Cash Flow Frog and Plan Guru. Excel also has a cash flow forecast template.
Sound Business Decisions
Cash flow forecasting enables you to make better business decisions. For example, let’s say you’re considering investing in more equipment, moving to a larger space, or expanding your inventory. Since these actions require a cash outlay, you’ll want to consider your cash flow projections before making the investment to be confident you can cover those expenses when they become due.
Next Steps
Once you understand cash flow and how to do cash flow projections, you can chart a course for improving your practice’s cash flow going forward! In next month’s article, I’ll cover what actions you can take.
Need Help?
If you have questions and/or would like to understand more about Improving Your Cash Flow, please reach out to me. I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com.
Do you do your own bookkeeping or have another non-accountant employee tackle this as “other duties as assigned”? I find that non-accountants often struggle when recording payroll-related entries. Challenges may occur even if you use an outside payroll service, since someone still needs to record the payroll entries in your accounting records in an accurate and timely manner. Here are some areas to consider to help you avoid common payroll accounting mistakes:
Start With Your Chart of Accounts Set Up
To facilitate proper payroll accounting, make sure you’ve set up your Chart of Accounts correctly in the first place. Entries involve recording your payroll-related costs and the related liabilities owed to others, such as the IRS and health insurance providers. To illustrate, below is a simplified version of what your payroll accounting entry might look like:
Debit: Gross Wage Expense* $5,000 Credit: Federal Withholding $500 Credit: FICA Payable $750 Credit: State Withholding $250 Credit: Employee Health Insurance $500 Credit: Cash $3,000
*Note: If you desire, you can break down Gross Wage Expense even further to distinguish between any key staffing groups in your business/organization, such as professional versus administrative staff expenses.
Create Efficiencies in Your Accounting System
Human errors often occur when manually inputting data into your accounting system. To save you or your staff time and help avoid errors due to inconsistent processing, take advantage of features in your system that allow you to set up memorized transactions for recurring accounting transactions. You’ll still have to update your payroll journal entry for the appropriate payroll dates and amounts for that pay period, but the general accounts used will be automatically stored and easy to use each time.
Check for Negative Balances in Your Payroll Liabilities Accounts
To check for payroll mistakes, generate a balance sheet report for the month from your accounting system. If you pay your PR taxes when required, then the liability accounts generally should be zeroing out on a monthly basis. If you find they’re not, you’ll have to do further research to understand why; it’s possible that a mistake has been made that requires fixing.
Perform a Quarterly Analytical Review
In addition to checking for negative balances, I recommend performing a quarterly review of your payroll activity to identify potential issues so they can be addressed promptly. This involves generating a profit-and-loss statement at the end of each quarter, which shows your payroll expenses (as well as other expenses) for each month in the quarter. Review the data for any unusual inconsistencies. For example, if your Gross Wage Expense shows significant variances across each month, but your staffing levels and salary amounts have not changed and there is no other logical explanation, it’s possible your payroll accounting entries were entered incorrectly.
Understand Payroll Filing Requirements
Even if you use a payroll service to manage your payroll process, you should still understand what forms are required to be filed with the federal, state, and local authorities and when they are due, since you have primary responsibility for compliance. Federal forms include your IRS Forms 941, 940, W-2, and W-3. For more information, go to https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-due-dates. You should also consult your state and local authorities for other filing requirements.
For more info on how to optimize your payroll process, see my article.
How Consultance Accounting Can Help
As a virtual accounting firm who performs outsourced accounting services for small- and medium-sized business and not-for-profit organizations and associations, Consultance Accounting can perform your bookkeeping and accounting services, to include processing, recording, and reconciling your Payroll. I’ll be happy to talk with you about ways to address your improve your practice. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
Mark Twain once said that, “If the first thing that you do when you wake up in the morning is to eat a live frog, you’ll have the satisfaction of knowing that’s probably the worst thing that’s going to happen to you all day long.” Self-development author Brian Tracy delves into this concept further in his book “EatThat Frog.” Tracy discusses how procrastination significantly impacts your productivity and ability to achieve success. Therefore, time management is essential and the key is to act on your biggest, ugliest task (i.e., your live frog) first.
So, as a not-for-profit executive, what’s your live frog? You may have many live frogs to tackle in your organization, but which one, if accomplished, will make the most difference? In the long run, what counts the most?
Time Management is as Easy as ABCDE
Like many time management advisors, Tracy recommends planning ahead and creating a list of all your to-do’s for the next day. His ABCDE method includes reviewing your to-do list carefully and assigning them as follows:
A – Activities that have serious potential consequences. These are the things that matter most to your organization
B – Activities that would be nice to do, but aren’t as serious as an A activity
C- Activities that would be fun to do, but have no consequences
After prioritizing your to-do list, the objective is to get your A tasks done – do these things well and do them quickly, and stop wasting time on lower value activities (B and C items). The D and E components of Tracy’s ABCDE method are “Delegate” and “Eliminate.” These are two important steps that many not-for-profit organizations and associations, as well as other small and medium-sized businesses have a hard time addressing, so let’s talk about these further:
Delegate: If you personally take care of your not-for-profit’s financial operations or have a non-accountant perform these duties along with other tasks on their plate, it’s time to consider delegating your bookkeeping and accounting tasks to an expert in that field. Have an experienced accounting services firm help you manage those areas outside your core competencies. For more on this, see my article on outsourcing.
Eliminate: Take a thoughtful look at your operations and identify ways to eliminate non-value-add tasks. From the bookkeeping and accounting perspective, this often can be done through integration and automation. For example, if you use QuickBooks Online, you can automatically download and categorize bank and credit card transactions, resulting in less manual processing. QuickBooks also syncs directly with many cloud-based apps, such as Bill.com and Expensify, to eliminate data entry for bills and expense transactions.
Eating the frog for many not-for-profit executives means focusing your precious time on meeting the needs of your members and program participants. Delegate your bookkeeping and accounting tasks and leverage accounting technology to eliminate low-value tasks on your to-do list. This can facilitate the success of your not-for-profit!
Need Help?
If you have questions and/or would like to pursue other actionable steps to ensure your business or not-for-profit organization’s continued success, please reach out to me. I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
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Sources:
Tracy, Brian. (2017). “Eat That Frog.” Berrett-Koehler Publishers, April 17, 2017.
5 Key Cybersecurity Steps to Protect Against Payments Fraud
Are you confident that cybersecurity controls in your bookkeeping and accounting operations are effective? In this article, I’ll address five key cybersecurity steps to protect your financial operations and help against the prevalent threat of payments fraud.
Your Business or Organization Is Susceptible to Fraud!
If you think that only large corporations are vulnerable to attacks, think again. According to Ponemon Institute’s 2018 State of Cybersecurity in Small & Medium Size Businesses sponsored by Keeper Security, small businesses increasingly face the same cybersecurity risks as larger companies, yet only 28% of those surveyed feel they’re highly effective in mitigating those threats, vulnerabilities and attacks.
According to the Ponenom report, most businesses surveyed experienced a cyber attack or data breach with severe financial consequences. Phishing/social engineering was the number-one type of attack experienced, followed by web-based attacks and general malware.
Imagine a scenario where payment data from your business or not-for-profit organization is compromised. I’m guessing you’ve already got a full workload as it is – so preventing issues in the first place is the way to go, since not only will you be protecting your brand, but you’ll also avoid the heartache and financial pain of the remediation process in the event your financial data is compromised.
Manage your risk of payment fraud by taking these 5 key steps:
1. Train your staff
Business Email Compromise (BEC) schemes are now common events. According to a Symantic Internet Security Threat Report, “In 2018 employees of small organizations were more likely to be hit by email threats – including spam, phishing, and email malware – than those in large organizations.” BEC schemes include fraudsters impersonating an employee, supervisor or existing vendor and requesting that payments be made to a fake bank account.
To prevent BEC schemes from occurring in your office, raise staff awareness about the common schemes that can occur. Regular reminders are a must, since it’s common for busy colleagues (including you) who are in the midst of their hectic daily schedules to inadvertently open up questionable email attachments or haphazardly respond to questionable email requests. So, instill in your team a healthy dose of skepticism when it comes to payments requests.
When a suspect payment request arises, everyone in your office should know the proper protocols. This includes how to correctly follow-up to validate the questionable request. You wouldn’t want your bookkeeper to just contact the purported vendor by calling back the phone number on the email in question, right? Don’t assume everyone knows what to do, so be very specific on how to verify the validity of a request and the appropriate bank account instructions to avoid leaving anything up to chance. And don’t forget to train your part-time and temporary staff too.
2. Implement bill approval processes
Having a second set of eyes involved in reviewing and approving requests for payment is another type of control used by many companies. To facilitate an efficient process, you can establish a dollar limit for approvals, so that anything over a certain amount needs a second review and approval. Using a cloud-base payment app such as Bill.com can facilitate your payments and the approval workflow.
3. Use Positive Pay
Positive Pay is a service offered by banks in which the bank verifies that the checks presented for payment match the list of checks you’ve issued. The bank performs this double check prior to payment, to make sure the information matches. If there’s a mismatch, the bank alerts you before any funds are issued, so you prevent losses from check payments fraud.
4. Strengthen your Bring Your Own Device (BYOD) practices
Do you allow your staff or contractors to use personal devices to access your office’s data and conduct work? According to a Keeper Security article, hackers take the path of least resistance, which is often times employee-owned mobile devices. Therefore, you need strong cybersecurity policies for personal devices if you’ve decided to allow employees to use them for work. Make sure employees protect the physical security of their devices and maintain the latest version of software (to keep security updates current). Enforce limitations on what can be accessed on them and require that the data be encrypted on these devices. Strong password controls should be implemented for both work and personal devices.
5. Check in with your outside bookkeeping and accounting firm
If you use an outside firm/person to do your bookkeeping and accounting, be sure to have a robust discussion with them to gauge the firm’s commitment to protecting the security and privacy of your information. Get comfortable that your outsourced firm is committed to strong security measures. The firm should have a formal security policy that includes strong technology safeguards for prevention, monitoring, detection and encryption, controlled access, ongoing employee security awareness training, and back up and maintenance procedures. If you use a web-based system(s) to conduct your bookkeeping and accounting operations (think QuickBooks Online, Bill.com, or the various payroll service providers out there), then typically, most providers of such services undergo stringent security procedures or SSAE16 attestations that test their data center’s level of security.
Need Help?
If you have questions and/or would like to pursue other actionable steps to ensure your business or not-for-profit organization’s continued success, please reach out to me, I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
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Sources:
Ponemon Institute. “2018 State of Cybersecurity in Small & Medium Size Businesses.” Keeper Security, 2018. <https://start.keeper.io/2018-ponemon-report>
Symantic. “ISTR Internet Security Threat Report.” Symantic, February 2019. <https://img03.en25.com/Web/Symantec/%7B1a7cfc98-319b-4b97-88a7-1306a3539445%7D_ISTR_24_2019_en.pdf>
Keeper Security. “5 Cybersecurity Tips For Small and Medium Sized Businesses.” Keeper Security, 27 September 2016. <https://keepersecurity.com/blog/2016/09/27/5-quick-cybersecurity-tips-for-small-businesses/>
Bill.com. “Protecting Yourself From Business Email Compromise (BEC) Schemes.” Bill.com, 26 March 2019. <https://support.bill.com/hc/en-us/articles/360015918451-Protecting-yourself-from-Business-Email-Compromise-BEC-schemes>
MDL Technology, LLC. “Cybersecurity Tips for Accounting Firms in 2018.” MDL Technology, 8 January 2018. <http://www.mdltechnology.com/cybersecurity-tips-accounting-firms-2018/>
Your Mid-Year Accounting Checkup for Your Business or Not-for-Profit
Take Stock of Where You Are Mid-Year
It’s hard to believe we’re halfway through 2019! As busy professionals, it’s easy to get caught up in the day-to-day needs of your business or not-for-profit. However, it’s a great time to perform a mid-year accounting checkup of your accounting operations, to ensure they’re supporting the overall success of your organization.
Consider your answers to the following important accounting questions so that you can identify any trouble spots early and make the necessary mid-course corrections. This will help you avoid costly fixes over the long-run and make sure you’re still on the right path to success:
1. Are Your Bookkeeping Processes Up to Date?
If you or your staff are getting lost in mounds of paperwork or spending too much time on manual bookkeeping entries, and/or you’re still paying bills using paper checks, it’s likely that your bookkeeping and accounting processes are outdated and costing you valuable time and money. Invest the time to bring your back-office operations up to date through more automated and integrated systems. For more information, read my article.
2. Are You Closing the Books on a Regular and Timely Basis?
The main objective of the closing process is to ensure the completeness and accuracy of the financial reports you need to run your business. The process includes properly recording all financial activity for the period and reconciling all accounts. Regardless of the size of your organization, it’s important to close your books on a regular basis, preferably monthly, so that you have an accurate and complete set of financial statements that reflect how you are doing.
If you’re uncertain about how to close the books, or you have a hard time closing them in a timely manner, it may be time to have a professional accountant provide guidance on how to build standard operating procedures (SOPs) to close the books effectively and efficiently.
3. Do You Have a Good Understanding of Your Financial Position?
Even if you have someone else do your bookkeeping and generate financial statements, you need to understand your business or not-for-profit’s financial status and review reports regularly so that you can make informed business decisions. If you have a hard time understanding what your statements are telling you about the financial condition, it’s time to get help. Take the time to walk through your financial statements with your accountant and don’t be afraid to ask questions.
4. Is Your Accounting System Working for You?
As part of the check-up, assess how well your accounting system is meeting your needs. If you’re experiencing rapid growth, make sure the current system is scalable and can grow with you. If it’s currently difficult to access real-time, accurate information about your financial activity in a secure and user-friendly way, it may be time to upgrade your current system. Click here for more info on the advantages of moving to QuickBooks Online.
5. Does Your Current Staffing Meet Your Accounting Needs?
If you find yourself spending too much time in the weeds of your day-to-day back office operations and it’s taking you away from what matters most to your organization, then it’s time to delegate certain tasks to others. During your mid-year check up, assess your staffing structure and determine whether it’s effectively meeting your growing needs. It may be time to hire outside experts to handle areas outside your core competencies. If you’re considering outsourcing your accounting, read my article on the benefits of outsourcing.
Summary
Investing the time to step back and take stock of your bookkeeping and accounting operations is a prudent best practice. Your mid-year check-up will help you assess how you’re doing and refine your practices in a cost-effective manner.
Questions?
If you have questions and/or would like help in any of the above areas, please reach out to me. I’ll be happy to talk with you about ways to improve your business or not-for-profit. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
New Business or Nonprofit Launch: Prescription for Success
When you’re a relatively new organizational leader, starting off from scratch or even purchasing an existing business can be quite overwhelming! Not only must you focus on marketing and getting new clients or customers, but also manage your vendor relationships and hire and oversee your staff. With so many balls to juggle during this launch phase, your accounting and finance operations may fall by the wayside – a path with disastrous results!
When it comes to your new business or nonprofit organization, here’s a prescription for success. Take these 3 actions to start off on the right path:
Hire an expert to handle areas outside your core competencies: You likely didn’t go to school to become an accountant, right? Don’t underestimate the amount of time it will take to get your accounting and financial operations in order and the value of doing it right the first time. An experienced accounting firm can advise you on proven, cost-effective ways to manage your organization’s financial operations. You’ll free up your time to focus on growing your practice and caring for your clients/customers and avoid costly mistakes that occur when you’re spread too thin across too many responsibilities. For more info, check out my articleon why a second set of experienced eyes avoids financial blind spots.
Establish a solid accounting system: Setting up the right accounting system will avoid costly issues in the long run. If you hire an accounting expert as I recommend above, he/she should be able to address this. But if you decide to implement this on your own, make sure your accounting system:
• Seamlessly integrates with your online banking and bill payment functions. This minimizes your need for tedious data entry and reduces errors.
• Provides you with real-time access to key financial information so that you don’t have to guess at where you stand in terms of income and expenses levels and cash flow activity.
• Generates user-friendly financial reports to help you make informed financial decisions (e.g., setting prices/rates to manage profitability) and aids in preparing your tax filings.
• Is scalable so that it grows when your business grows.
• Is proven to be stable, reliable and secure.
I recommend QuickBooks Online for my clients, since this cloud-based solution addresses all of the above requirements.
Review your fees and pricing strategy: As part of your overall business plan, you’ll want to implement a sound pricing strategy for your various programs, services and product sales. This includes setting competitive prices, and managing the cost of equipment, staffing and other operating costs. It’s important to forecast your break-even points and to track and monitor your profit margins so that you can fine-tune your strategy as needed. An experienced accountant can provide significant help in this regard.
While there will be other financial responsibilities to address as you manage your organization, these three key actions are a great prescription to get you started on the right path for success!
Need Help?
If you have questions and/or would like to pursue other actionable steps to start your new business or nonprofit on the right path to success, please reach out to me. I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
Avoid Financial Blinders: Gain Experienced Eyes Through Outsourced Accounting.
As head of an outsourced accounting services firm that serves small and medium-sized businesses, my new clients are often amazed by the results of our onboarding process. We usually find a number of gaps in their operations, including accounting errors, inaccurate financial statements and process inefficiencies. I always assure my new clients that no matter how diligent they or their staff thought they were, it’s beneficial to have a second set of more experienced eyes handle this area.
This is particularly important for professional service firms whose skills lie in areas other than accounting, for example, IT, HR, legal and real estate consulting services, not to mention the healthcare field. Let’s say you’re an optometrist: you wouldn’t let an accountant examine and care for your patients’ (or let alone your own) eyes, so why does it make sense for you to handle your practice’s financial operations?
If I’ve struck a chord and you’d like to know more about outsourcing, check out my article: Why Outsourcing Your Accounting Can Be the Next Step to Successful Growth. However, if you plan to continue handling your own bookkeeping and accounting tasks, here’s some advice to avoid mistakes, i.e., financial blinders:
Chart of Accounts: Your Chart of Accounts is the framework within your accounting system that allows you to record your financial activity in a structured and organized way, under the main categories of Assets, Liabilities, Equity, Income and Expenses. If you set up your Chart of Accounts thoughtfully, you can create meaningful financial statements to help inform your business decisions. However, one common mistake I see businesses make is to lump all income into one account. It’s better to identify your major sources of income and create an account for each. For instance, create distinct accounts for fees related to consulting services, each major program and product sales. The same goes for your major expenses. By doing so, you’ll be able to track and assess how profitable each line of business is doing, which is vital to managing your finances.
Standard Operating Procedures (SOPs): SOPs help you avoid errors and facilitate business continuity and efficient processes. A common mistake I see in businesses and not-for-profit organizations is the absence of any type of written procedures for their back-office functions. Without SOPs, it’s much harder to train people, delegate tasks and be comfortable that your financial activity has been processed and recorded accurately and timely. Learn more about the importance of SOPs in my article: Avoid Costly Mistakes by Standardizing Your Accounting Processes. Also, see this Intuit article that describes 21 accounting tasks that should be part of your SOPs.
Reviewing Financial Statements: Your monthly financial statements are a wealth of information – if they are accurate and you know what they are telling you. Even if you have someone on staff who does your bookkeeping and generates your financial statements, you need to understand your financial status and review reports regularly. A common mistake I see is under-utilization of financial information. For example, many business owners and not-for-profit leaders worry about cash flow management but are unfamiliar with their Cash Flow Statement, which is a basic report that can easily be generated from most accounting systems. For more on Cash Flow Statements, I recommend this article from Intuit: Everything You Need to Know About Your Statement of Cash Flows.
Accounting Technology: Today’s accounting technology has removed a tremendous burden from small and medium-sized businesses, allowing owners to streamline processes, strengthen information security and move to a paperless environment. I’ve found that many owners/leaders are not fully aware of the user-friendly, cloud-based accounting applications that can make their lives easier. That’s why outsourcing your accounting function to a reputable firm is beneficial, since it’s the firm’s job to stay on top of the most proven, cost-effective solutions. If you continue to do your accounting in-house, it’s a good idea to invest the time in researching and understanding technology tools that may make your organization the best it can be.
Financial blinders, like the ones above, can occur when you or your internal staff are responsible for things not normally within your core competencies. Hiring a reputable accounting firm enables you to focus on what you do best: taking care of your members, customers and/or clients and growing your business, while leaving the accounting duties to an experienced professional. However, if you aren’t quite ready to make any changes, I hope my advice helps!
Need More Help?
If you have questions and/or would like to learn more about avoiding financial blinders through a second set of experienced eyes, please reach out to me, I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
In last month’s article, I introduced the concept of financial risk management and why it’s an important process for small businesses and other organizations to take a disciplined approach, to beat the odds of financial failure. I also covered the first two important steps of identifying and assessing potential risks. Even if you’ve completed those steps, there’s still the important task of taking action to address your key risks. Let’s get started so that you can sleep better at night!
What Actions Should I Take? Implement a Plan
Implementing a plan of action to address your highest risks is the most critical part of the process. For example, let’s say you’ve identified profitability as a key risk – that is, the risk that your profit margins are too low to sustain your business (or for not-for-profits, your ability to maintain sufficient revenues over expenses to fund programs and services). You’ll want to brainstorm on what types of steps can be taken to manage this risk. If you employ a bookkeeper or accountant, get his or her input as well.
Illustrative Example: Action Plan to Address Profitability Risk:
What Happens Next? Monitoring Progress
Financial risk management is an ongoing process, not a one-time event. Be sure to monitor how well your action plan is working to address your risks and adjust as needed. Also remember that your key risks may change over time, based on both external and internal factors.
An Ounce of Prevention Is Worth a Pound of Cure
You may feel like there’s not enough time to do the above approach, given all of your other priorities. However, it’s better to be proactive now and take control of your destiny; the hardest part is just getting started! If the above tasks still seem daunting to you and your staff, consider hiring an outside consultant to lead you through this process. A seasoned professional will be knowledgeable about the wide range of risks that practices like yours face and can help customize a risk-management plan that works for your specific business or not-for-profit.
Questions/Need Help?
If you have questions and/or would like to understand more about managing financial risks, please reach out to me, I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com
When you’re a relatively new organizational leader, starting off from scratch or even purchasing an existing business can be quite overwhelming! Not only must you focus on marketing and getting new clients or customers, but also manage your vendor relationships and hire and oversee your staff. With so many balls to juggle during this launch phase, your accounting and finance operations may fall by the wayside – a path with disastrous results!
