Accounting is a critical component to any business operation. It not only tells you where your business stands, but also allows you to make informed business decisions moving forward.
When your financial information is up to date, you can make smarter, faster decisions and modifications for your business as needed. You can use the information to identify cash flow opportunities, cost containment strategies and your financial capacity to make business-building investments.
When your financial information is out of alignment and outdated, you keep yourself at a significant disadvantage. You’re constantly working off inaccurate, aged-out information, which often leads to faulty assumptions about where you stand and what your next steps should be.
As you move forward with any next steps – whether your goal is cost containment or business expansion – your financials and accounting records must be top priority and they must inform your strategy. Accounting is a guidepost for how your organization is functioning. If you’re not prioritizing it and following best practices, it could guide you off course. If you optimize accounting, you optimize your business.
To get it right, there must be an individual or individuals whose primary goal is to ensure up-to-date, accurate accounting at your organization. It’s also essential that leadership remains actively involved and supportive. This way, you can make the best decisions for the future of your organization.
However, it’s not always easy or within budget to hire an in-house accounting professional or team. For some, outsourcing is the more cost-effective option. In fact, outsourcing accounting can mean better process efficiency and greater outcomes – and ROI – when you work with an experienced, trusted advisor.
Here, we’ll offer guidance as to how to evaluate your current accounting practices and financial health and how outsourced accounting can help at any stage of the process – from evaluating your current and long-term needs, to improving the timeliness and accuracy of recording your transactions, reconciling your accounts, creating financial statements, financial analysis- including comparison to budget, cash flow analysis and forecasting financial results. Outsourcing provides management-level expertise, giving you confidence in your financials.
If you’ve never outsourced, you may feel unsure of what, how, when and why companies outsource in the first place – but you may also feel the pinch of being under-resourced.
At a basic level, any organization should have a review process in place that documents when invoices are due, when bills are paid and when cash/checks or electronic payments are reviewed and deposited. This is a solid foundation for an accounting program that’s on the right track.
In addition, monthly reconciliations should be performed for the following common accounts:
Another critical component of basic accounting best practice is understanding, monitoring and managing your financial performance. To do this, you’ll need to:
Your financial data can reveal insights that are game changers for your organization. It’s just a matter of harnessing and analyzing that data to make it actionable. For that, it helps to have a little guidance.
Whether you have the basics in place or not, there may be flaws in your processes and opportunities for improvement. These flaws and opportunities aren’t inconsequential. A well-run accounting department isn’t a nice-to-have, like an organized junk drawer. Finances influence a variety of factors in your organization, from supply chain to inventory to new business models. The impact of optimizing accounting, particularly through outsourcing, could be groundbreaking for your business.
Shaping up your finances doesn’t happen in a day. Build the following best practices into your accounting program to identify problems, reconcile accounts and measure the impact in key accounting areas.
Keep in mind that when you outsource such reviews and practices to an experienced third party, you will benefit more immediately from that outsider’s perspective, as well as their familiarity and industry expertise.
Certain red flags in your finances could signal underlying issues that could wreak havoc on your organization. Here are a few to look out for:
Your accounting records are key to detecting red flags and warning signs in your finances. Review and update the following records to identify issues that need remedying.
Warning sign: Cash no longer reconciles to your bank account.
Review your account activity, starting from the last time your cash was in balance, and work through your current period end. If you have significant unexplained differences in a monthly or annual bank reconciliation, it might be an issue with bookkeeping. It’s best to address these differences rather than let them go, as they can continue to grow.
Warning sign: Balance sheet no longer balances.
Your assets should be debits and your liabilities and equity should be credits. You’ll want to review your retained earnings or net assets accounts and make sure they roll forward from the prior year (as a general rule, nothing should be posted directly to these accounts.
Review your assets and liabilities for reasonableness.
Warning sign: Making manual adjustments to equity.
When you find yourself recording manual adjustments to an equity account, besides equity transactions like owner contributions and distributions, it’s a red flag. Only in rare instances, such as correcting an accounting error, should you make manual adjustments to equity. The correct answer is almost always to record the adjustment within your income statement, rather than to your equity account. Always make sure to proactively inform your CPA’s about these adjustments. And if you have to make many of these manual adjustments, it may be time to discuss the issue with a professional.
Warning signs: Account disagreements and negative balances.
Looking at your balance sheet account reconciliations can help you identify issues with the books. A couple items to look for include:
Don’t underestimate the power of the balance sheet when you are looking at your books. When you have a concern, you can often look to the balance sheet to see where problems originate. If you outsource your accounting to a third party, the balance sheet will be critical in helping them evaluate your financial status, identify red flags and optimize your processes.
Of all the metrics in your organization, how do you identify the ones that are most consequential and provide the best insights to help you stay on track? Here are a few focus areas and key performance metrics organization leaders should focus on and optimize:
Keeping accurate records for sales is important because sales figures can help you determine revenue and inventory purchases. Implement detailed policies and procedures for all types of sales, whether cash, checks, credit cards or online sales. Consider using an invoicing system when shipping goods and having proof of delivery when goods are shipped. Also, check your invoices against sales and payments to ensure everything matches up correctly.
Income from operations keeps your organization going. Making sure you collect, and on time at that, is very important. To keep up on accounts receivable, establish collection policies in writing and make sure to implement those policies. For instance:
Technology has made it easier for hackers, scammers and even employees to commit fraud or other harm to your organization. Such incidents could have major implications for your financial standing and business continuity, so it’s important to monitor activity, have proper separation of duties and establish defensive policies upfront.
To keep your people (and your organization) safe, consider the following:
The physical assets your organization owns, such as machinery and laptops, are of great value to your organization. If one of these assets is compromised, it can greatly affect your finances and operations. Make sure they are safeguarded or locked up to prevent theft of the assets and the information stored on them. Record asset purchases and monitor use and depreciation on them to stay up to date on their value. To ensure assets don’t fall into the wrong hands and aren’t mishandled, set a usage policy.
As a business leader, you must be hands on when it comes to financials. Being involved and invested in accounting best practices can save time and prevent potential risk at your organization.
From a leadership perspective, you should ensure the following capabilities are enabled for your accounting department and that you’re actively involved:
Organization leaders must play an active role in accounting and finance – but they can’t do it all on their own. Whether you need a little consulting or a lot of outsourcing, professional guidance can make a world of difference.
Many organizations run a tight ship, with limited budgets and resources. Yet the accounting role is critical. That’s why business leaders turn to outsourcing as a way to gain the information they need without having to bear the burden of hiring someone full-time.
Specifically, outsourcing can:
Outsourced accounting staff with a high level of financial knowledge can:
In addition to these daily and monthly tasks such as data entry and reconciliation, outsourced accountants and financial professionals can help you craft a plan to move forward, optimize your operations and position your organization for the future.
Further, top outsourced accounting firms utilize technology to help you move forward with key business decisions. Instead of utilizing an on-premise, possibly outdated solution, the best accounting outsourcing organizations look to the cloud or to software solutions your organization may need to thrive and grow. Cloud computing allows organizations to be “elastic” with employees gaining access to applications from anywhere in the world. Such technology also provides access to real-time analytics, giving organizations a competitive edge while aligning with overall business objectives.
Accounting is a crucial component of business. In the current age of disruption, it’s more important than ever. Outsourcing through a trusted advisor can help you identify red flags more readily, solve for them and pave a path toward for an even more efficient and promising future.
Here’s how outsourcing can benefit your organization.