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 http://www.consultancellc.com