The beauty of privately owned companies is the speed at which they can pivot. Lean management can facilitate quick decisions, allowing your company to immediately pursue new opportunities, or do a quick about face when you realize your path is unproductive. Timely and accurate financial statements are imperative to enable management to act efficiently and effectively. These statements allow management to evaluate financial results in real time, take immediate corrective action when necessary, and provide motivation for the staff.
To get started on improving the process of creating monthly statements, first develop a checklist of all the building blocks of the financial statement. This ensures that all staff knows the company’s needs and expectations. The checklist will look different for each company, but should include such basics as bank statements, bank reconciliations, and supporting documentation for key balance sheet accounts. There should be a hard deadline for each deliverable on the checklist. Ideally, information should be compiled in a monthly closing binder or folder, either hard copy or electronically, for ease of reference.
Frequent and regular processing of data and cash reconciliation
There are several common errors or delays in data processing and cash reconciliation that could easily be avoided.
- Produce invoices to clients on a regular schedule. While this may seem obvious, it is not always an established process.
- Cash receipts, if any, should be posted daily.
- Vendor invoices should be vouchered weekly.
- If the transaction volume warrants, reconcile cash more than once a month. Since online banking allows cash to be reconciled much more frequently, there is no excuse for a mad rush at month end.
- Address debit card purchases on a regular schedule rather than only during bank reconciliation. A weekly schedule is generally more efficient. This avoids the bookkeeper wasting time trying to figure out the business owner’s debit purchase information after the fact.
- If possible, use technology to your benefit by downloading credit card charges directly into your accounting software instead of entering it manually.
- Do not include too much detail in payroll entries. For example, there is generally no need to enter gross to net for every paycheck. This is extra detail that leaves too much room for error. Detailed information is in the payroll reports themselves.
- If the accounting system supports a “memorized transaction” (i.e., a recurring transaction) this function should be used to save time and increase accuracy. For instance, depreciation entries, which are the same each month, can be easily handled this way.
Weekly flash reports
Another opportunity for a collaborative, as opposed to reactive, accounting function is weekly flash reports from accounting to management that give key metrics, such as billing, collections, cash flow, and cash balance. This helps avoid surprises, and management rejection of the financial statements as either impossibly good or impossibly bad.
Monthly balance sheet reconciliation
Monthly reconciliation of the balance sheet (assets and liabilities) allows errors to be spotted immediately and dealt with easily, rather than discovered months later when details about things like loans to employees or petty cash disbursements become fuzzy.
Ensure integrity in accounting software
To add integrity to your system, be sure to:
- Give each user his or her own username and login to the accounting file. That way, any recurring errors can easily be traced back to the user.
- Close accounting periods with a password. Otherwise, someone can enter a transaction into the system with an old date (such as a prior year). This adversely affects the balance in the equity accounts, and the offending entry will be very time consuming and difficult to find.
Once you implement these processes, you will find that your company can produce financials in a much more orderly and consistent manner. For companies that are not very transactional, using the above system should allow the production of a complete set of financials by the 15th of the following month. For more transactional or complex businesses, a complete set of financial statements should be achievable by the end of the following month. For year-end, the timeframes are usually lengthened, but not by much. The processes are not dramatically different; however, certain new information may be required by a company’s outside CPA or bank.
Tedd Drattell is founder and CEO of The A Team Group of Companies, which provides quality talent in a wide range of markets including finance and accounting, IT and administrative, and business support on an outsourced, temporary, temporary-to-direct-hire, or direct-hire basis. He can be reached at 646-783-1940 and email@example.com, or visit www.theateamgroup.com.