risk

May 9 2019

Avoid Financial Blinders: Outsourced Accounting

Orin Schepps Accounting, Internal Controls, Virtual Accounting accountant, Avoid Financial Blinders, Bookkeeper, Chart of Accounts, financial statements, Gain Experience, nonprofit, not-for-profit, outsourced accounting, Outsourced Accounting Services, risk, Standard Operating Procedures

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

April 11 2019

What Keeps You Up at Night? Managing Financial Risks (Part 2)

Orin Schepps Accounting, Business Process Reengineering, Internal Controls accountant, Bookkeeper, financial risk management, Implement a Risk Management Plan, Managing Financial Risks, nonprofit, not-for-profit, risk

What Keeps You Up at Night? Managing Financial Risks (Part 2): Implement a Risk Management Plan

Note: This blog is the second in a two-part series on managing financial risks to your organization, and focuses on implementing a plan of action.

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

March 14 2019

What Keeps You Up at Night? Managing Financial Risks (Part 1)

Orin Schepps Accounting, Business Process Reengineering, Internal Controls Identification & Assessment, Identify Potential Risks, Managing Financial Risks, nonprofit, not-for-profit, risk, What Is Financial Risk Management

What Keeps You Up at Night? Managing Financial Risks (Part 1): Identification & Assessment

Note: This blog is the first in a two-part series on managing financial risks to your organization, and focuses on identifying and assessing potential risks. Click here to read part 2.

As the head of a small business or not-for-profit organization, even when things are humming along, it can be scary to think of all the things that could go wrong. These can include a wide range of possible risks, including:

○ Client/customer/member issues, such as maintaining high-quality services
○ Personnel challenges, including staffing shortages
○ Ability to handle complex regulatory changes
○ Operational challenges, such as business continuity and information security
○ Financial vulnerabilities, including unpredictable cash flows and cost control issues

Just thinking of all the potential hazards can be enough to give one nightmares! However, rather than sticking your head in the sand and hoping things will go smoothly, you can be proactive and take prudent steps to manage your biggest risks. In this article, I’ll introduce the first step in an approach to manage your organization’s financial risks, which can also be applied to other types of risks you face.

What Is Financial Risk Management and Why Is It Important?
Financial risk management is a disciplined approach to identify and assess negative events that could threaten one’s business operations, and then minimize the likelihood and impact of those threats. According to statistics from the U.S. Small Business Administration, many small businesses don’t survive their first few years [see SBA Office of Advocacy report]. Therefore, investing time in financial risk management can help you beat the odds of financial failure.

How Should I Start? Identify Potential Risks
First, start by identifying potential financial risks (i.e., threats) to your organization. You’ll want to take a thorough look at the exposures to your business or not-for-profit. This will include not only risks related to your revenues, but also risks related to controlling expenses, managing your cash flows and operational issues that impact your finances, such as the secure back up and storage of your accounting information. In this early step of the process, write down potential risks regardless of whether or not you feel they currently are being managed sufficiently. In other words, start with a broad look at what financial threats could inherently occur in your operations. The list can be narrowed down later, but for now, you want to avoid missing anything important.

Where Should I Focus? Assess the Likelihood and Impact
Once you’ve identified and created a holistic list of potential risks that could impact your organization, assess each risk in terms of its likelihood to happen as well as the level of impact it would have. This process will help you prioritize potential risks that have the most negative impact if they were to occur. These are the ones you want to focus on at this time.

What’s Next?
Once you’ve gone through these first two steps, you’re well on your way to implementing a disciplined risk-management approach. This is often the hardest part of the process, so congratulations! In next month’s article, I’ll cover what actions you should take to address your key risks, that is, implementing a risk-management plan.