Why Accounting Outsourcing Matters for Your Organization in a Time of Uncertainty

June 10, 2020 | Article

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. 

In times of economic uncertainty, accounting is even more vital. Having up-to-date financial information can define your modifications to your accounts receivable or inventory practices. 

Your accounting is a guidepost for how your organization is functioning. Now is the time to make sure you’re getting it right. 

Accounting is a huge factor for cash flow and cost containment techniques.

Watch for signs your business is struggling financially
Financial issues happen. But there are certain signs that signal an underlying issue that can wreak havoc on your organization. 

Here are some signs your business may be facing some serious financial struggles.

  1. Cash Flow – Common cash flow issues include smaller profit margins, loss of sales, theft and allowing accounts receivables to get too backed up.
  2. Mountains of Accounts Payable – When you “pay” your bills on credit, they go to the accounts payable ledger, and not paying them off can create quite a mountain of bills. Consider setting up procedures for cross checking payments, always check pricing options from competitors and vendors and be sure that billing amounts are being entered correctly.
  3. Inventory Issues – If you’re holding on to too much inventory and not selling it, you’re basically spending money on storage. If you sell products that could spoil, keeping them in inventory too long can result in losing money off ruined items.
  4. Profit Problems – As a business, your main goal is likely to make a profit. Profit, in its simplest form, is when you have more revenue than expenses. Although an obvious sign that your business is struggling financially, this is an important one to keep in mind. Along with your profits, you want to have high profit margins, which signify what percent of your revenue actually turns into profit for your business.
Keep your accounting records up-to-date
Your accounting records can expose warning signs that something could be wrong. 

Bank Reconciliations
Arguably the most obvious warning sign is that cash no longer reconciles to your bank account. This mistake can usually be fixed by reviewing your account activity, starting from the last time your cash was in balance and working through your current period end. However, if you are completing a monthly or annual bank reconciliation and have significant unexplained differences, there’s a good chance something went wrong with the bookkeeping. It’s a never a good idea to let these – or any other – differences go, as they can continue to grow. 

Balance Sheet Blunders
Another obvious alert is that the balance sheet no longer balances. When your balance sheet isn’t in balance, your business can also end up unbalanced, which can cause some serious issues. 

Most accounting software will not allow you to maintain an unbalanced balance sheet, or will provide you an alert that something you did will cause an imbalance. If you start getting these alerts or notice things aren’t balancing, it’s best to look at what could have caused the error and how to fix it before entering it into the balance sheet. Taking the time to figure out what went wrong right away will save you time and headaches in the future.

Equity Adjustments

Any time you record a manual adjustment to an equity account, besides normal equity transactions like owner contributions and distributions, something might not be quite right. Only in rare instances, such as correcting an accounting error, should you make manual adjustments to equity. In fact, you should consider if the adjustment would make more sense to be recorded within your income statement, rather than to your equity account. If you do find yourself making a lot of manual adjustments to your equity accounts, it may be time to discuss with a professional.

Account Reconciliations

Looking at your balance sheet account reconciliations can be another helpful way to see if there is anything wrong on the books. A couple items to look for in your account reconciliations include:
  • Account reconciliation detail doesn’t agree to the balance sheet amount
  • Similar to the bank reconciliation, if your account detail – such as accounts receivable and accounts payable detail – doesn’t agree with your balance sheet, it may indicate a problem with the reconciliation process. A detailed review of your account records can help you identify which difference needs to be corrected.
  • Negative balances in your account reconciliation detail
  • While this may happen occasionally and not be an issue, there can be times when this indicates a problem. For example, if a customer has a significant negative accounts receivable balance, do you actually owe that customer a refund or was something entered incorrectly? On the other hand, if you have a negative accounts payable balance from one of your vendors, are you really expecting a refund or does that indicate an error with payment?

Don’t underestimate the power of the balance sheet when you are looking at your books. When things go wrong on the books, you can often look to the balance sheet to see where problems originate.

Focus on Key Accounting Areas
Of all the metrics you can focus on in your organization, how do you know which ones will help you stay on track? There are a lot of considerations that go into managing a business. Here are a few areas business leaders should focus on:

Sales figures can help you determine revenue and inventory purchases, so keeping accurate records is important. To do this, implement detailed policies and procedures for all types of sales, whether it be 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, be sure to check your invoices against sales and payments to ensure everything matches up correctly.

Accounts Receivable
Income from your operations keeps your business going, so making sure you collect, and on time at that, is very important. To keep up on AR, establish collection policies in writing, and make sure to follow through on implementing these policies. Here are some ideas:

  • Establish a solid system for billing, such as numerical or batch processing
  • Have a timely review process for all accounts
  • Keep your accounts receivable separate from cash. Review the account receivable aging reports and make sure they appropriately reflect cash postings on a timely basis.
  • Have security measures in place for communicating with clients. If you are a healthcare organization, ensure you are maintaining HIPAA compliance.

Human Resources and Payroll
Technology has made it easier for hackers, scammers and even bad-egg employees to commit fraud or other harm to your business. To keep your people (and your business) safe, consider the following:

  • Require password updates regularly- for you and your employees, and make sure to keep all passwords safe and not written down.
  • When it comes to payroll, review the details and checks/direct deposits to make sure pay is being disbursed properly.
  • Pay attention to any differences between payroll expenses and monthly budgets – this could be a red flag that someone or something has gotten access to your books.

Many COVID-19 relief provisions have direct implications on your payroll.

Physical Assets
The physical assets your business owns, such as machinery or laptops, are of great value to your business – you don’t want anything happening to them. When it comes to laptops and other electronics, make sure they are safeguarded or locked up. This makes it difficult for someone to steal the physical piece itself, along with the information stored on it. Record asset purchases and monitor use and depreciation on them to stay up to date on their value. Also consider setting a usage policy so assets aren’t falling into the wrong hands or being mishandled.

Remote working happened quickly for many organizations. Here are items to consider when it comes to remote working’s affect on your organization.

Ensure Leadership Stays Hands On 
As a business leader, it’s more important than ever for you to be hands on when it comes to your financials. Working on you accounting immediately can save time and prevent potential risk. Simple, timely steps can help see you through this time of uncertainty: 

  • Send the invoice right away. Or, add a process to automate invoices.
  • Ensure you can receive electronic payments. This ensures easier access to funds and also prepares your organization for a touchless or minimal contact environment post COVID-19.
  • Keep your inventory on track so you know exactly what you have on hand. Make necessary adjustments to increase turn on both inventory and accounts receivable.
  • Review cash flows weekly. Your cash flow will tell you the money coming and going from your business each week and let you know where you’re standing.
  • Reconcile cash against your receipts daily. This will not only help you find issues, but also protect against potential fraud.

Business leaders are going to have to use a high-touch approach to manage the complexities businesses and industries are facing for the foreseeable future.

The organizations who will see through this have an eye on their financials.

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